Judge issues preliminary injunction against anti-trust newspaper agreements

By Julia Cheever, Bay City News Service

December 20, 2006

SAN FRANCISCO (BCN) - A federal judge today barred the owner of 10 Bay Area newspapers and the parent company of the San Francisco Chronicle from combining, for now, their local distribution operations and national advertising sales.

The preliminary injunction issued by U.S. District Judge Susan Illston was requested by San Francisco businessman Clint Reilly as part of his antitrust lawsuit against MediaNewsGroup Inc. and the Hearst Corp.

The judge's order remains in effect at least until an April 30 trial on the lawsuit, set for Illston's courtroom in San Francisco.

New York-based Hearst owns the Chronicle and Denver-based MediaNews owns 10 Bay Area papers including the San Jose Mercury News, Oakland Tribune and Contra Costa Times.

Lawyers for the two companies had argued the injunction was unnecessary because the papers' publishers had signaled their intention to wait until after the trial before pursuing any cooperative agreements.

But the judge said that ruling in the newspapers' favor might make them change their mind and begin consolidation actions before trial.

"The court therefore wants to leave no confusion as to its expectation that defendants will comply with their stated intent not to pursue any of the agreements at issue," Judge Illston wrote in a two-page ruling. "The only way to do so definitively is to issue the preliminary injunction."

According to court documents, Hearst and MediaNews agreed earlier this year to negotiate pacts to offer national and Internet advertising sales for their Bay Area newspapers on a joint basis and to consolidate the papers' distribution networks.

Illston said in a Nov. 28 ruling on the case that the agreement and other evidence increases "the likelihood that the transactions at issue here were anticompetitive and illegal."

MediaNews took over the Mercury News, Contra Costa Times and two other newspapers from Sacramento-based McClatchy Co. last summer in a complex $1 billion deal in which Hearst provided $263 million in financing. MediaNews already owned the Tribune and seven other Bay Area papers.

Reilly contends the deal will reduce competition in violation of federal antitrust laws and thereby decrease newspaper quality and choice for Bay Area residents. His attorney, Joseph M. Alioto, said of the injunction, "It's a harbinger of things to come."

Alioto said, "The evidence is getting to be very, very strong that the Chronicle will not be a strong competitor" with the MediaNews papers in the Bay Area.

Hearst spokesman Paul Luthringer said, "The (preliminary injunction) order is consistent with the representations made in the papers we recently filed in court."

A spokesman for MediaNews was not immediately available for comment.

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