No TRO For Ad/Sat p. 11

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By: Dorothy Giobbe

Federal judge refuses to grant temporary restraining order
against Associated Press; plans for AdSEND can proceed pending
outcome of lawsuit; judge says Ad/Sat’s claims ‘ring hollow’ sp.

A FEDERAL JUDGE last week refused to issue a preliminary injunction against the Associated Press that would have halted implementation of AdSEND, the AP electronic ad delivery service.
The request for the injunction, brought by Ad/Sat, charged that the AP, Newspaper Association of America and a group of newspapers are conspiring to use monopoly power to force Ad/Sat out of the electronic ad transmission market.
Lawyers for Ad/Sat argued that without the injunction, Ad/Sat would suffer permanent and immediate damage through the destruction of its ongoing business.
In his September 23 ruling, U.S. District Judge Peter Leisure ruled that Ad/Sat had “failed to show that such an outcome is imminent . . . . It seems unlikely that, absent a preliminary injunction, plaintiff’s business will fail.”
Ad/Sat’s lawsuit against AP is “neither likely to succeed on the merits, nor raises sufficiently serious questions going to the merits,” and failed to show a balance of hardship that would have favored the injunction, according to the ruling. Additionally, the court found that Ad/Sat’s anti-competitive claims “ring hollow,” and that “plaintiff alludes to the organization of a boycott, but leaves its allegations wholly unsubstantiated.”
The ruling followed a day of court proceedings that included the testimony of David Hilton, president and chief executive officer of Ad/Sat.
Hilton, part of a group that acquired Ad/Sat for $200,000 on March 8, 1994, said that this year the company expects to record a profit for the first time on anticipated revenues of $5.5 million. Currently, Ad/Sat has exclusive contracts with over 100 newspapers, Hilton said. Although Hilton was aware that AP was considering entering the ad transmission market when he bought the company, ultimately he concluded that it was unlikely, according to his testimony.
In a late May meeting with Patrick O’Brien, vice president, CFO, and director of business development for AP, Hilton was assured that AP would not “crush” Ad/Sat, he testified.
Since that meeting, several large newspapers have either halted all dealings with Ad/Sat, or indicated to Hilton that they would not renew their contracts, pending implementation of Ad/SEND, he testified.
The loss of such “industry leaders,” Hilton testified, is likely to start an “avalanche” among newspapers, and have a “devastating impact” on Ad/Sat’s business.
Executives from some of the newspapers named in the suit have served on the board of the AP or the NAA, and Ad/Sat’s suit contends the newspapers are “conspiring” with the AP to boycott Ad/Sat.
On cross-examination, AP’s lawyers asserted that Ad/Sat has priced itself out of the market, with high transmission, maintenance and equipment fees. The defense also questioned why Ad/Sat had lost money each year, even though it was the “industry leader,” and why Ad/Sat had waited so long to file the lawsuit.
An AdSEND rate card that quoted a $4 transmission fee is “just one segment” of AdSEND’s pricing, the defense argued, and “not representative” of the entire pricing structure. AdSEND will be able to charge less than Ad/Sat because it will carry a higher volume of ads, the defense asserted.
Also, the defense pointed to a management consultant study, commissioned by Ad/Sat, that concluded Ad/Sat would be able to compete with Ad/SEND.
A memorandum in opposition to the request for a temporary restraining order was filed by AP and entered into the record. In the memorandum, AP’s lawyers assert that even though Ad/Sat has known about AdSEND for at least seven months, “Ad/Sat nevertheless chose for tactical reasons to wait until just three business days before the launch of the AP’s competing service to file its complaint and seek immediate injunctive relief.”
“If any illegal injury from the new competition to be created by AP were truly inevitable and irreparable, Ad/Sat would not have sat on its hands for half a year,” according to the memorandum.
An affidavit by O’Brien also was entered into the record, stating that AP has purchased about $3 million of equipment for AdSEND, and the operating costs of AdSEND so far exceed $1 million.
“The AP does not plan to give away the AdSEND service below cost,” according to the affidavit. “The rates for AdSEND have been set by AP to be commercially reasonable and economically sustainable. AP has no plans to engage in pricing below cost as Ad/Sat contends.” Ad/Sat’s equipment is “about seven years old in many cases, costs about $100,000 per location and represent’s yesterday’s technology,” the affidavit stated.
The court sealed a second affidavit by O’Brien, and one by Hilton, as well as documents that contained proprietary financial information.
During closing arguments, Joseph Alioto, counsel for Ad/Sat, accused
AP of exercising “a raw usage of power” to gain market dominance for AdSEND.
Noting that currently AdSEND has a “zero percent market share,” Dennis Drebsky, an attorney for AP, said that the news cooperative “isn’t trying to exclude anyone . . . . It’s Ad/Sat that has the exclusionary contract.”
“There is simply not any credible evidence of a predatory pricing scheme, or that Ad/Sat is being driven out of the market by anything other than it’s own competitive failures,” Drebsky said. “Ad/Sat had the field to itself for many years and what did it do? It lost money and had limited market penetration.” He went on to characterize Ad/Sat’s lawsuit as “a shameful attempt to pervert antitrust laws . . . . “
After the ruling, David Nachman, counsel for Ad/Sat, said that “With all due respect to the judge, we feel he was wrong on virtually every issue. We intend to pursue the lawsuit and look forward to a jury hearing all of Ad/Sat’s claims.”
“Obviously we were very happy that the judge correctly found that none of the plaintiff’s points were correct,” Drebsky said. “The decision validates AP’s position.”
“Obviously we were very happy that the judge
correctly found that none of the plaintiff’s points were correct,” Drebsky said. “The decision validates AP’s position.”

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