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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 -
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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