Motion — United States v. Greater Buffalo Press, Inc.

INDEX.

*AGE

I is ce seeee insane awe baeea ek eee 2

A Sp eee es ee ry area 2

I cae lee Neuen ie cana 4 ame 3

Es bigids 600% 04600645 605550 00k s ude a end 3

The effect of the acquisition was to benefit

competition in the sale of color comic supple-

EE a in bids odin SKENGKES SEAS Aes ox 7

. The acquisition of a non-competitor did not

have the effect of substantially reducing com-

NE Kn 6 466K Se wees euSGS KEREDSDEn RAGS oHAKs 10

. The District Court properly rejected the ‘‘num-

bers game”’ test relied on by the appellant below

and now advanced as presenting a substantial

DD (Sine baheecesnvk enw ease bhuacnneae as 12

. The divestiture by Greater Buffalo Press of

International at this time would be inequitable

and would only serve to benefit Hearst and King

Features who were originally alleged to be the

Mrimeipal WFOMGUCers ...... 2... ccccecccccces 13

; cLusion. The question presented is not substan-

‘tial. The judgment should be affirmed ............ 15

TABLE OF CASES.

n Shoe Co. v. United States, 370 U. S. 294 at

ERNIE SEP ene eran ae yee er 4,9

a . v. Procter & Gamble Co., 386 U. S. 568 at 581

_ ORES Ree rrr re rer Tere nae 13

) tates v. Phillipsburg National Bank, 399 U. S.

‘ 0 at ED aca. is incense th ead denen cant 12, 14

IL.

STaTUTEs.

PAGE

EES Te? Pere Tee ree eee e Pee ee 12

Section 3 (15 U. 8. C. $14) ....... ccc cecccccscees 2

Section 7 (15 U.S. C. § 18) ........ cece ee eee 2, 9, 11

Sherman Act, Sections 1 and 2 (15 U.S. C. §§1,2).... 2

MISCELLANEOUS.

36 A. B. A. Antitrust L. J.. Merger Rules and Guide-

EEE CREED se sseccicasessedcrecnvcrerrer

CCH Trade Cases {73,195 (W. D. N. Y. 1970).......

IN THE

Supreme Court of the United States

October Term, 1970

No. 821

UNITED STATES OF AMERICA,

Plaintiff-A ppellant,

vs

GREATER BUFFALO PRESS, INC., et al.,

Defendants-A ppellees.

On APPEAL FROM THE UNITED States District Court

FOR THE WESTERN District or New YorK.

MOTION TO AFFIRM

The appellees move pursuant to Rule 16 of this Court

to affirm the judgment sought to be reviewed on this ap-

peal on the ground that it is manifest that the questions

on which the decision of this cause depend are so unsub-

stantial as not to need further argument.

The trial court announced no new proposition of law. It

merely applied oft stated principles to the facts as found.

The trial court’s decision is limited to these facts and is

not one of general application and cannot foreseeably af-..

fect other cases.

9

~

Statement of Case

The complaint in this case was filed in January, 1961

and charged The Hearst Corporation with violating See.

tion 3 of the Clayton Act and conspiring to violate Sections

1 and 2 of the Sherman Act; Newspaper Enterprise Asso-

ciation, Inc. with violating Section 3 of the Clayton Act —

and conspiring to violate Sections 1 and 2 of the Sherman

Act; and Greater Buffalo Press, Inc. with violating Section

2 of the Sherman Act, Section 7 of the Clayton Act, and

conspiring to violate Sections 1 and 2 of the Sherman Act.

All that remains of these charges is an appeal by the

government from the dismissal of the Section 7 violation

alleged against Greater Buffalo Press.

On May 26, 1970 after a protracted trial a final judg-

ment was entered in the District Court for the Western

District of New York dismissing the complaint against

Greater Buffalo Press and its subsidiaries and dismissing

the complaint against Newspaper Enterprise Association,

Ine. The Court decided that the acquisition by Greater

Buffalo Press of the stock of International Color Print

Corporation in 1955 did not violate Section 7 of the Clay-

ton Act (15 U. S. C. §18). The Court also dismissed

charges of conspiracy under Sections 1 and 2 of the Sher-

man Act (15 U.S. C. §$1, 2) and charges that Newspaper

Enterprise Association, Inc. violated Section 3 of the Clay-

ton Act (15 U. S. C. $14). Much earlier in the litigation,

on August 31, 1965, a consent decree was entered with re-

spect to the Hearst Corporation and its subsidiary King

Features Syndicate.

The government now seeks to appeal from only that por-

tion of the judgment which dismissed charges against

Greater Buffalo Press, Inc. alleging a violation of Sec-

tion 7 of the Clayton Act. The charges originally brought

ee Te

3

against the defendant Hearst Corporation and its sw

sidiary King have been dropped by entry of the consent

decree and the government is not appealing the dismissal

of the other charges against either Greater Buffalo Press

or Newspaper Enterprise Association because of what the

government calls “changed circumstances” (Jurisdictional

Statement fn. 2, pp. 4-5).

Opinion Below

The opinion of the District Court is reported at CCH

Trade Cases {[ 73,195 (W. D. N. Y. 1970) and is set forth at

pages 23-43 of the appe!lant’s Jurisdictional Statement. -

Summary of Argument

The decision of the District Court dismissing the com-

plaint rests upon findings of fact which present no sub-

stantial question to this Court. A study of the opinion

of the District Court reveals that no novel or new proposi-

tions of law are relied upon and no unique legal or legal-

economic analysis is set forth. The District Court made

proper determinations of fact supported by evidence which

are not clearly erroneous. It correctly applied the rele-

vant statutes and case law as announced by this Court in

dismissing the complaint.

ARGUMENT

Contrary to the position of the Justice Department in

eases such as this, the fact that the government has been

unsuccessful in antitrust litigation does not, in itself, mean

that the appeal presents substantial questions for review

by this Court. The District Court found as a fact that the

acquisition of International Color Print Corporation by

Greater Buffalo Press “had no reasonable probability of

4

substantially lessening competition in the color comic sup.

plement industry’’ (District Court Opinion, p. 37°).

This finding is amply supported by the evidence. The

decision of the District Court evidences a complete aware.

ness of the unique features of the industry. Any mean.

ingful discussion of the substantiality of the questions at.

tempted to be presented to this Court must necessarily

proceed from the particular and peculiar facts which make

up the color comic supplement printing business as an

acquisition should “be functionally viewed in the context

of its particular industry”. Brown Shoe Co. v. United

States, 370 U.S. 294 at 322 (1962).

Greater Buffalo Press is one of several firms that print

color comie supplements for newspapers. Many other

firms do such printing for newspapers. Many newspapers

print their own. Every newspaper has the ability to

print its own comie supplements, but many have found

that it is more economical to obtain the supplements from

independent sources (Opinion, pp. 26, 27; Jurisdictional

Statement, p. 5). There is in the business a state of flux

in that many newspapers that never printed their own

comic supplements are now doing so, and many others

that used to print their own now obiain them from comic

printers.

Since the material contained in the comic strips is eopy-

righted, the newspapers must be licensed to publish each

specific comic appearing in its supplement. The licensing

of such comics is done through syndicates such as King

Features Syndicate, a subsidiary of the Hearst Corpora-

tion, and Newspaper Enterprise Association, Inc. These

syndicates also sell the printing of the supplements. The

1 Citations to the opinion of the District Court refer to pages of appellant's

Jurisdictional Statement.

5

syndicates not only control who shall publish comics on a

proad, regionally exclusive basis? but also control other

licenses such as nationally syndicated writers and colum-

nists whose appeal to the reading public is extensive. The

loss of either desirable comic strips or of popular national

columnists can seriously affect the circulation of a news-

paper.

Any newspaper seeking to furnish its readers with a

color comic supplement may do so in either of two ways.

It can negotiate with these syndicates for the license to

publish the individual comics it desires and then either

print the color comic supplement itself or contract with

one of many color printers to print the supplement. Alter-

natively, it can contract with these syndicates for both the

license and the furnishing of the printed color supplement

product.

One need not be familiar with the newspaper business

to understand the difficulty smaller newspapers would have

in resisting attempts by the syndicates to also obtain the

printing. Dealing with the syndicate exclusively for both

the licensing and furnishing of the finished comic supple-

ment can benefit the newspaper in obtaining or holding the

exclusive license to both the comic features and the colum-

nists who have great appeal with its readers. Collateral to

this method of furnishing a color comic supplement is the

ability of the syndicates such as King and Newspaper

Enterprise Association to offer smaller newspapers a

“ready-print’’ supplement section which is a prepared

supplement section containing the same comic features with

only a masthead change substituting the name of each

newspaper using the ready-print section (Opinion, p. 29).

be mbjec of © of Ste graces was not an issue in this case, but is

pending cases. See footnote 3, p. 5 of ‘Jurisdictional

6

This eliminates set-up charges which might be prohibitive

for a small newspaper either printing its own or contrac.

ting with a printer.

The fees charged for the licensing of features by the

syndicate are not established by published price lists, but

are negotiated between the newspaper and the syndicate

(Opinion, p. 27; Jurisdictional Statement, p. 5). Greater

Buffalo Press has no control over the licensing of features,

It owns no feature rights of its own, and has never en-

gaged in the licensing aspect of the business (Opinion, p.

29; Jurisdictional Statement, p. 6). Its business consists

exclusively of printing color comic supplements for those

who have obtained the licensing rights elsewhere. Inter.

national, on the other hand, has never printed color comic

supplements for newspapers. Its business was solely that

of a captive contract printer engaged in printing the comics

for the King Features Syndicate, subsidiary of the Hearst

Corporation, which is engaged in the sale of features to

newspapers (Opinion, p. 36).

International never employed a sales force of its own

and its sole source of business was King Features Syndi-

cate (Jurisdictional Statement, p. 7). International’s con-

tract with King was cancellable on six months’ notice

(Jurisdictional Statement, p. 7). Hearst, King’s parent,

has always had and continues to have the capability of

printing the comic supplements for both King’s customers

and Hearst’s own papers (Opinion, p. 37). Some of

Hearst’s subsidiary newspapers print their own color

supplements (Jurisdictional Statement, p. 8). But, as the

government’s Jurisdictional Statement notes, both King

Features Syndicate and Hearst have a ‘‘policy’’ of not

getting into the business of printing color comic supple-

ments for others (Jurisdictional Statement, p. 8).

7

A. The effect of the acquisition was to benefit competi-

tion in the sale of color comic supplement printing.

Greater Buffalo Press, a family-owned business guided

by the genius of its founder, Walter Koessler, was and is

the most efficient printer of color comic supplements. Un-

aided by the benefits of public financing and due in large

part to his mechanical talent, he was able to develop a

system of pre-registry in the color printing field which en-

abled Greater Buffalo Press to produce a higher quality

product at a lower price (Opinion, p. 28; Jurisdictional

Statement, p. 6).

Because the acquisition took place fifteen years ago, thie

District Court was able to examine not what ‘‘might be the

effect’’, or what ‘‘probably will be’’ the effect but rather

what was the effect of the acquisition. It found that the

competition had not lessened but had increased (Opinion,

p. 38). The reason it had increased is because Greater

Buffalo Press was able to help International install its

advanced process of pre-registry by use of its ‘‘improved

methods and engineering skills’’ (Opinion, p. 38). This

enabled International to immediately increase its product

from 16,000 per press hour to 20,200 per press hour of its

admittedly ‘‘better quality product’’ (Jurisdictional State-

ment, p. 5). The result of this was to enable the syndi-

cates to offer large newspapers, as well as smaller news-

papers purchasing ‘‘ready-prints’’ a better quality prod-

uct at a cost less than they would be able to obtain the prod-

uet elsewhere or produce it themselves. The syndicates

.5As an illustration of the “changed circumstances” and to show that compe-

tition continued in the industry we note that approximately thirty newspapers

printing their own color comic supplements in 1955, elected thereafter to obtain

from syndicates or —— ie. Beaumont, Texas Enterprise ; Bridge-

t Herald; rlotte, North Carolina; Daytona Beach News;

Post; Denver Rocky Mountain News; Elmira, New York Star Gazette

& Telegram; Ft. Smith Times Record; Galveston, Texas Tribune; Jacksonville

( Footnote continued on following page)

8

were assured of a permanent source of high quality print-

ing. Competition in the sale of the printing flourished as

a result. The syndicates became more competitive. The

product they could furnish to their customers via ‘‘ready-

print’’ was stabilized and improved.

A hallmark of restrictive competition is rising prices in

favor of the remaining competitors. Yet Greater Buffalo

Press has not raised its prices in fifteen years. The reason

for constant prices during this period of rising cost is com.

petition, both actual and potential. Should Greater Buf.

falo Press raise its prices to the point where others can

profitably print color comic supplements, the newspapers

and syndicates would enter the field and are able to do

so without capital investment since the facilities including

their own are at their disposal.* The District Court recogn.

ied this:

“There is every reason to believe that if at any time

the cost of purchasing such color comic supplements

exceeds the cost to the newspapers of printing them,

the newspapers will do the printing themselves” (Opin-

ion, p. 27).

As a result of the acquisition, the syndicates have the

best of both possible worlds. They remain possessed of

(Footnote continued from preceding page)

Times Union; Jefferson City, Missouri Post Tribune; Coshocton, Ohio Tribune;

Laredo, Texas Times; Little Rock, Arkansas Democrat; Memphis Commercial

Appeal; Missoula, Montana Sentinel; Muskogee, Oklahoma Times Democrat;

New Orleans Times; Oakland Tribune; Owensboro, Kentucky Messenger;

Pasadena Star; Philadelphia Bulletin; Philadelphia Inquirer ; Pittsburgh Press;

Portland Oregonian; San Francisco Chronicle; ee Massachusetts

ne pane St. Louis Post Dispatch; Tampa Tribune; Yakima, Washington

earld.

Of the comic printing business of these newspapers, eleven were obtained

by Greater Buffalo Press, five by King Features Syndicate, four by Acme

Printing, three by Newspaper Enterprise Association, three by Hearst, and

one ea Eastern Color, Southern Color, World Color, and Bartlesville,

Oklahoma miner-Enterprise.

4Sece list of newspapers that now print their own comics that did not do

so in 1955 set forth in footnote 5 infra.

9

their monopoly power with respect to licensing and have a

supplier of quality color printing at a price economically

advantageous to them. Their ability to compete with each

other and to persuade newspapers to purchase their product

rather than print it themselves is enhanced, for now they

are able to supply a finished product of higher quality. In-

deed, the syndicates are now better able to lure both the

customers of other printers and those newspapers that

formerly printed their own comics since now the finished

product of the syndicates is equal in quality to that of

Greater Buffalo Press. Klimination of the least efficient

printer in no way violated the antitrust laws for the “pro-

tection of competition not competitors’’ is the purpose of

Section 7. Brown Shoe Co. v. United States, 320 U. 8. 294

at 324 (1962). Speaking hefore a meeting of the American

Bar Association Section of Antitrust Law in 1967, Federal

Trade Commissioner Philip Klman stated:

“But no merger has ever heen held unlawful on the

ground that by increasing the efficiency of the parties

to the merger, it hurt their competitors. No case has

heen, or is likely to be, brought on such a theory. I

have read about, but see no real evidence of, a conflict

between the merger law and economic efficiency. Where

the only consequence of a merger is to achieve greater

economies and increased efficiencies, who—I ask—will

attack it as anti-competitive?’’ (italics ours). 36 A. B.

A. Antitrust L. J., Merger Rules and Guidelines 23 at

27 (1967).

The government is in error in attacking as anti-competi-

tive the acquisition of International which admittedly

achieved great economies and increased efficiency.

10

B. The acquisition of a non-competitor did not have

the effect of substantially reducing competition.

International never competed with Greater Buffalo Press

for newspaper printing. Its acquisition by Greater Buffalo

Press could not in any way lessen competition between the

two which never existed. The District Court defined the

relevant product market and line of commerce to properly

reflect the existing situation in the color printing business.

By distinguishing between the printers that print for news.

papers and those that print for syndicates the court took

into account the power the syndicates possess over the

licensing of copyrighted features. This is evident from the

finding of the court:

“These are the lines of commerce—to treat them to-

gether as one line of commerce, i.e. the printing and

sale of color comic supplements would be to ignore the

tremendous leverage of the syndicates which control

the copyrighted features. The testimony of Walter

Koessler and other witnesses in this case has estab-

lished firmly that the syndicates, and in particular

King, have a unique position by virtue of the legal

monopoly which they have over the copyrighted fea-

tures. The court is of the opinion that the peculiar

characteristics and business uses of copyrighted fea-

tures justify considering printing for syndicates as a

separate product market” (Opinion pp. 30-31).

This was an eminently sensible distinction to make. Other-

wise, the product market would have included King as a

competitor in the printing business and King does no print-

ing at all. The combinaton of printing and selling of sup-

plements urged by the government as an appropriate line

of commerce would have resulted in an over-broad and

artificial analysis which would not have reflected the situa-

tion in the industry. It would have included as printers

those who are not and treated as sellers those who do not.

11

And one of the reasons why the printers cannot be classed

together is because the syndicates do not separate the

prices charged for printing from those charged for licens-

ing. Proper market definition separates sellers from

printers and syndicate printers from printers for news-

papers. Thus, while it may be true that Greater Buffalo

competes with King for sales, it does not compete with In-

ternational for sales or with King for printing. And be-

cause International’s sole customer, King, controls the

features, Greater Buffalo cannot compete with Interna-

tional for printing because Greater Buffalo’s prices do not

include the licensing right.

The artificiality of the product markets urged by the

government and the tortuous reasoning engaged in by the

government is amply reflected by the repeated references

to “International-King” (Jurisdictional Statement, pp. 16,

17). Such references ignore the separate corporate entities

of these concerns and erroneously convey the impression

that Greater Buffalo Press obtained part of King by an

acquisition. This is simply not true nor is there any sup-

port in the record for such a supposition. Moreover, the

fact persists that Greater Buffalo Press did not obtain a

contractual right to print for King by acquiring Interna-

tional. King could have gone to other printers or used the

facilities of Hearst to do the printing itself. While

Greater Buffalo Press may have had ‘‘high hopes’’ (Juris-

dictional Statement pp. 17, 18, fn. 10) for obtaining the

printing contracts because of its improved methods and

pre-registry system, the appellees are unable to locate any

reported case for the proposition that ‘‘high hopes’’ con-

stitute a per se violation of Section 7. Indeed, it did obtain

such contracts but only because it was and ‘‘is the most

successful and efficient comie supplement printer, largely

[>

because of the technical and innovative skills of its presi-

dent, Koessler’’ (Jurisdictional Statement, p. 6). What-

ever the salutary purposes of the Clayton Act, inefficiency

should not be fostered and efficiency penalized by enforce-

ment of its provisions.

C. The District Court properly rejected the “numbers

game” test relied on by the appellant below and now ad-

vanced as presenting a substantial question.

The appellant, relying on previous discredited statistics,

blandly asserts that Greater Buffalo Press “obtained ap.

proximately three-quarters of the industry’s printing capa-

city” (Jurisdictional Statement, p. 14). This erroneous

assertion, based on fragmentary figures which do not in-

clude the color prints of newspapers which do their own

printing, and premised on the broad and artificial product

market urged below, do not merit consideration. The Dis-

trict Court impliedly rejected the “numbers game” test.

United States v. Phillipsburg National Bank, 399 U. S. 350

at 376 (1970). This was clearly demonstrated by the Dis-

trict Court’s question to counsel for the government on

final argument :

“The Court: What are you urging me to do, find

like a formula that 30% equals violation?”

(Transcript, December 17, 1969, p. 5, line 18.)

The rejection of the government’s analysis is amply sup-

ported by previous decisions of this Court and by the

evidence in this case casting serious doubts on both the

applicability and relevancy of the cited statistics with

regard to this particular industry.

The District Court correctly declined to follow this

computer-like “res ipsa loquitor approach to anti trust

13

eases” F.T.C. +. Procter & Gamble Co., 386 U.S. 568 at

581 (1967).

D. The divestiture by Greater Buffalo Press of Inter-

national at this time would be inequitable and would only

serve to benefit Hearst and King Features who were

originally alleged to be the principal wrongdoers.

This litigaton was initiated as the result of a complaint

concerning tie-in practices of King Features, 7.e. the tieing

of licenses for features with contracts for the printing

thereof. This action was halted against Hearst and King

Features by entry of an innocuous consent decree on An-

gust 31, 1965. This decree, characterized as a “somewhat

unusual conditional decree” in the government’s Jurisdic-

tional Statement in a footnote at p. 15, was said to have

been agreed upon by the government to protect King’s

abilty “to complete effectively”. Thus, King, the alleged

predator, became the party for whom the government

sought protection. The trial court’s comment on this

phase of the litigation appears in the Jurisdictional State-

ment at p. 24. King has become the ward of the govern-

ment since it is King who is allowed to continue negotiat-

ing license fees and printing costs in package form (the

original basis for the commencement of the action). King's

alleged violation seems to have become unimportant and

the government’s only concern seems to be that King be

furnished with an independent supplier of printing.

This is a most unusual case in that every customer of

Greater Buffalo Press and every customer of International

has at all times had and continues to have easy access to

the market with the continued ability to print its own comic

features. Why, in the circumstances, the Justice Depart-

tient should continue to concern itself with this case in

14

the face of findings of fact adverse to its contention, we

do not know. We believe that the observation of Mr. Jus.

tice Harlan in U. S. v. Phillipsburg National Bank, 399

U.S. 350 at 374 (1970) is applicable to the case at bar.

“With tigers still at large in our competitive jungle,

why should the Department be taking aim at such

small game?”

The government’s citations to bank merger cases have

no application to the case at bar but even in the bank cases

it has been stated that:

“New entry can, of course, quickly alleviate ‘undue’

concentration. And the possibilty of entry can act

as a substantial check on the market power of exist-

ing competitors.” U.S. v. Phillipsburg National Bank,

399 T. S. 350 at 377 (1970).

The ability to open a bank cannot be seriously compared

to the ability of a going newspaper to print comic supple-

ments for itself and others. Indeed, the “changed circum-

stances’’ (Jurisdictional Statement, pp. 4, 5, fn. 2) which

persuaded the government to abandon its conspiracy

charges against all of the defendants indicate that the

eompetitive situation since 1955 remains healthy due to the

entry of 13 newspapers’ into the color printing field.

5 Meridian, Mississippi Star; Augusta, Georgia Chronicle; Savannah,

Georgia News; Miami, Florida Herald; St. Petersburg, Florida Times; Hack-

ensack, New Jersey Record; Jackson, Mississippi Clarion Ledger; Partles-

ville, Okla. Examiner; Chickasha, Okla. Express; Okmulgee, Okla. Times;

Tacoma, Washington News-Tribune; Worcester, Mass. Telegram; Hays,

Kansas News; Fairfield, Calif. Republic; Sacramento, Calif. Union. The

supplement volume of these papers ranges from over 1,500,000 to approximately

16,500 four-pages sections per week which demonstrates that size is no obstacle

to entry.

4

© Ae | a) LAD ee ee

Rete Wemty teats

15

CONCLUSION

The question presented is not substantial. The judg-

ment should be affirmed.

Dated: November 5, 1970.

Respectfully submitted,

FRANK G. RAICHLE,

Attorney for Appellees,

10 Lafayette Square,

Buffalo, New York 14203,

Telephone: 716-852-7587,

RaicHLE, Banninc, Weiss & HaLPesn,

ArnoLp WEIss,

Ratpu L. HaupPern,

Of Counsel.