Citizen Publishing Company v. United States/Opinion of the Court

Tucson, Arizona, has only two daily newspapers of general circulation, the Star and the Citizen. The Citizen is the oldest, having been founded before 1900, and is an evening paper published six times a week. The Star, slightly younger than the Citizen, has a Sunday as well as a daily issue. Prior to 1940 the two papers vigorously competed with each other. While their circulation was about equal, the Star sold 50% more advertising space than the Citizen and operated at a profit, while the Citizen sustained losses. Indeed the Star's annual profits averaged about $25,825, while the Citizen's annual losses averaged about $23,550.

In 1936 the stock of the Citizen was purchased by one Small and one Johnson for $100,000 and they invested an additional $25,000 of working capital. They sought to interest others to invest in the Citizen but were not successful. Small increased his investment in the Citizen, moved from Chicago to Tucson, and was prepared to finance the Citizen's losses for at least awhile from his own resources. It does not appear that Small and Johnson sought to sell the Citizen; nor was the Citizen about to go out of business. The owners did, however, negotiate a joint operating agreement between the two papers which was to run for 25 years from March 1940, a term that was extended in 1953 until 1990. By its terms the agreement may be canceled only by mutual consent of the parties.

The agreement provided that each paper should retain its own news and editorial department, as well as its corporate identity. It provided for the formation of Tucson Newspapers, Inc. (TNI), which was to be owned in equal shares by the Star and Citizen and which was to manage all departments of their business except the news and editorial units. The production and distribution equipment of each paper was transferred to TNI. The latter had five directors-two named by the Star, two by the Citizen, and the fifth chosen by the Citizen out of three named by the Star.

The purpose of the agreement was to end any business or commercial competition between the two papers and to that end three types of controls were imposed. First was price fixing. The newspapers were sold and distributed by the circulation department of TNI; commercial advertising placed in the papers was sold only by the advertising department of TNI; the subscription and advertising rates were set jointly. Second was profit pooling. All profits realized were pooled and distributed to the Star and the Citizen by TNI pursuant to an agreed ratio. Third was a market control. It was agreed that neither the Star nor the Citizen nor any of their stockholders, officers, and executives would engage in any other business in Pima County-the metropolitan area of Tucson-in conflict with the agreement. Thus competing publishing operations were foreclosed.

All commercial rivalry between the papers ceased. Combined profits before taxes rose from $27,531 in 1940 to $1,727,217 in 1964.

The Government's complaint charged an unreasonable restraint of trade or commerce in violation of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1, and a monopoly in violation of § 2, 15 U.S.C. § 2. The District Court, after finding that the joint operating agreement contained provisions which were unlawful per se under § 1, granted the Government's motion for summary judgment.

The case went to trial on the § 2 charge and also on a charge brought under § 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. § 18. The latter charge arose out of the acquisition of the stock of the Star by the shareholders of the Citizen pursuant to an option in the joint operating agreement. Arden Publishing Company was formed as the vehicle of acquisition and it now publishes the Star.

At the end of the trial the District Court found that the joint operating agreement in purpose and effect monopolized the only newspaper business in Tucson in violation of § 2 of the Sherman Act.

As respects the Clayton Act charge the District Court found that in Prima County, the appropriate geographic market, the Citizen's acquisition of the Star stock had the effect of continuing in a more permanent form a substantial lessening of competition in daily newspaper publishing that is condemned by § 7.

The decree does not prevent all forms of joint operation. It requires, however, appellants to submit a plan for divestiture and re-establishment of the Star as an independent competitor and for modification of the joint operating agreement so as to eliminate the price-fixing, market control, and profit-pooling provisions. 280 F.Supp. 978. The case is here by way of appeal. Expediting Act, § 2, 32 Stat. 823, as amended, 15 U.S.C. § 29.

We affirm the judgment. The § 1 violations are plain beyond peradventure. Price-fixing is illegal per se. United States v. Masonite Corp., 316 U.S. 265, 276, 62 S.Ct. 1070, 1077, 86 L.Ed. 1461. Pooling of profits pursuant to an inflexible ratio at least reduces incentives to compete for circulation and advertising revenues and runs afould of the Sherman Act. Northern Securities Co. v. United States, 193 U.S. 197, 328, 24 S.Ct. 436, 453, 48 L.Ed. 679. The agreement not to engage in any other publishing business in Pima County was a division of fields also banned by the Act. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199. The joint operating agreement exposed the restraints so clearly and unambiguously as to justify the rather rare use of a summary judgment in the antitrust field. See Northern Pac. R. Co. v. United States, 356 U.S. 1, 5 78 S.Ct. 514, 518, 2 L.Ed.2d 545.

The only real defense of appellants was the 'failing company' defense-a judicially created doctrine. The facts tendered were excluded on the § 1 charge but were admitted on the § 2 charge as well as on the § 7 charge under the Clayton Act. So whether or not the District Court was correct in excluding the evidence under the § 1 charge, it is now before us; and a consideration of it makes plain that the requirements of the failing company doctrine were not met. That defense was before the Court in International Shoe Co. v. FTC, 280 U.S. 291, 50 S.Ct. 89, 74 L.Ed. 431, where § 7 of the Clayton Act was in issue. The evidence showed that the resources of one company were so depleted and the prospect of rehabilitation so remote that 'it faced the grave probability of a business failure.' 280 U.S., at 302, 50 S.Ct. at 93. There was, moreover, 'no other prospective purchaser.' Ibid. It was in that setting that the Court held that the acquisition of that company by another did not substantially lessen competition within the meaning of § 7. 280 U.S., at 302 303, 50 S.Ct. at 92-93.

In the present case the District Court found:

'At the time Star Publishing and Citizen Publishing entered     into the operating agreement, and at the time the agreement      became effective, Citizen Publishing was not then on the      verge of going out of business, nor was there a serious      probability at that time that Citizen Publishing would      terminate its business and liquidate its assets unless Star      Publishing and Citizen Publishing entered into the operating      agreement.' 280 F.Supp., at 980.

The evidence sustains that finding. There is no indication that the owners of the Citizen were contemplating a liquidation. They never sought to sell the Citizen and there is no evidence that the joint operating agreement was the last straw at which the Citizen grasped. Indeed the Citizen continued to be a significant threat to the Star. How otherwise is one to explain the Star's willingness to enter into an agreement to share its profits with the Citizen? Would that be true if as now claimed the Citizen was on the brink of collapse?

The failing company doctrine plainly cannot be applied in a merger or in any other case unles it is established that the company that acquires the failing company or brings it under dominion is the only available purchaser. For if another person or group could be interested, a unit in the competitive system would be preserved and not lost to monopoly power. So even if we assume, arguendo, that in 1940 the then owners of the Citizen could not long keep the enterprise afloat, no effort was made to sell the Citizen; its properties and franchise were not put in the hands of a broker; and the record is silent on what the market, if any, for the Citizen might have been. Cf. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176.

Moreover, we know from the broad experience of the business community since 1930, the year when the International Shoe case was decided, that companies reorganized through receivership, or through Chapter X or Chapter XI of the Bankruptcy Act often emerged as strong competitive companies. The prospects of reorganization of the Citizen in 1940 would have had to be dim or nonexistent to make the failing company doctrine applicable to this case.

The burden of proving that the conditions of the failing company doctrine have been satisfied is on those who seek refuge under it. That burden has not been satisfied in this case.

We confine the failing company doctrine to its present narrow scope.

The restraints imposed by these private arrangements have no support from the First Amendment as Associated Press v. United States, 326 U.S. 1, 20, 65 S.Ct. 1416, 1424, 89 L.Ed. 2013, teaches.

Neither news gathering nor news dissemination is being regulated by the present decree. It deals only with restraints on certain business or commercial practices. The restraints on competition with which the present decree deals comport neither with the antitrust laws nor with the First Amendment. As we stated in the Associated Press case:

'It would be strange indeed * *  * if the grave concern for      freedom of the press which prompted adoption of the First      Amendment should be read as a command that the government was      without power to protect that freedom. The First Amendment,     far from providing an argument against application of the      Sherman Act, here provides powerful reasons to the contrary. That Amendment rests on the assumption that the widest     possible dissemination of information from diverse and antagonistic sources is      essential to the welfare of the public, that a free press is      a condition of a free society. Surely a command that the     government itself shall not impede the free flow of ideas      does not afford nongovernmental combinations a refuge if they      impose restraints upon that co stitutionally guaranteed      freedom. Freedom to publish means freedom for all and not for     some. Freedom to publish is guaranteed by the Constitution,     but freedom to combine to keep others from publishing is not. Freedom of the press from governmental interference under the     First Amendment does not sanction repression of that freedom      by private interests. The First Amendment affords not the     slightest support for the contention that a combination to      restrain trade in news and views has any constitutional      immunity.' 326 U.S., at 20, 65 S.Ct. at 1424.

The other points mentioned are too trivial for discussion. Divestiture of the Star seems to us quite proper. At least there is no showing of that abuse of discretion which authorizes us to recast the decree. See United States v. Crescent Amusement Co., 323 U.S. 173, 185, 65 S.Ct. 254, 260, 89 L.Ed. 160.

Affirmed.

Mr. Justice FORTAS took no part in the consideration or decision of this case.