Daily Court Transcripts
May 03, 2000
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VOLUME 3
PAGES 383 - 668
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
CLINTON REILLY, )
)
PLAINTIFF, )
)
VS. ) NO. C 00-0119 VRW
)
THE HEARST CORPORATION, )
ET AL., )
)
DEFENDANTS. )
____________________________)
SAN FRANCISCO, CALIFORNIA
WEDNESDAY, MAY 3, 2000
TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
ATTORNEY AT LAW
SHULMAN, WALCOTT & SHULMAN, P.A.
121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
BY: DANIEL R. SHULMAN
JAMES HILBERT
ATTORNEYS AT LAW
(APPEARANCES CONTINUED ON FOLLOWING PAGE)
REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
OFFICIAL REPORTERS, USDC
COMPUTERIZED TRANSCRIPTION BY ECLIPSE
384
1 APPEARANCES: (CONTINUED)
2 FOR DEFENDANT SHEPPARD, MULLIN, RICHTER & HAMPTON
HEARST CORPORATION: FOUR EMBARCADERO CENTER, 17TH FLOOR
3 SAN FRANCISCO, CALIFORNIA 94111
BY: GARY L. HALLING
4 THOMAS D. NEVINS
ATTORNEYS AT LAW
5
BAKER & HOSTETLER LLP
6 1050 CONNECTICUT AVE., N.W.
SUITE 1100
7 WASHINGTON, D.C. 20036
BY: GERALD A. CONNELL
8 ATTORNEY AT LAW
9 FOR DEFENDANT LATHAM & WATKINS
CHRONICLE PUBLISHING 505 MONTGOMERY STREET
10 COMPANY: SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
11 BY: PETER K. HUSTON
J. THOMAS ROSCH
12 GREGORY P. LINDSTROM
ATTORNEYS AT LAW
13
FOR INTERVENOR- MC CUTCHEN, DOYLE, BROWN & ENERSEN
14 DEFENDANT EXIN, LLC: THREE EMBARCADERO CENTER, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94111
15 BY: DAVID M. BALABANIAN
CHRISTOPHER B. HOCKETT
16 THOMAS S. HIXSON
ATTORNEYS AT LAW
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18
19
20
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23
24
25 385
1 I N D E X
2
3 PLAINTIFF'S WITNESSES PAGE VOL.
4 COMANOR, WILLIAM S.
DIRECT EXAMINATION BY MR. SHULMAN 401 3
5 CROSS-EXAMINATION BY MR. ROSCH 468 3
CROSS-EXAMINATION BY MR. HOCKETT 523 3
6 CROSS-EXAMINATION BY MR. CONNELL 534 3
REDIRECT EXAMINATION BY MR. SHULMAN 562 3
7 RECROSS-EXAMINATION BY MR. HOCKETT 582 3
RECROSS-EXAMINATION BY MR. CONNELL 583 3
8
CLANCY, THOMAS G.
9 DIRECT EXAMINATION BY MR. SHULMAN 585 3
CROSS-EXAMINATION BY MR. HOCKETT 608 3
10 CROSS-EXAMINATION BY MR. HUSTON 618 3
CROSS-EXAMINATION BY MR. HALLING 623 3
11 REDIRECT EXAMINATION BY MR. SHULMAN 625 3
12 ROBERT E., PAGE
DIRECT EXAMINATION BY MR. SHULMAN 630 3
13 CROSS-EXAMINATION BY MR. HOCKETT 653 3
CROSS-EXAMINATION BY MR. HUSTON 660 3
14 CROSS-EXAMINATION BY MR. CONNELL 664 3
REDIRECT EXAMINATION BY MR. SHULMAN 666 3
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25 386
1 I N D E X
3 E X H I B I T S
4
PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
5
59 632 3
6 143 THROUGH 147 419 3
7 DEFENDANTS' EXHIBITS W/DRAWN IDEN EVID VOL.
8 C-352 484 3
C-353 517 3
9 C-354 419 3
H-0938 542 3
10 H-1183 390 3
H-939 546 3
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25 387
1 WEDNESDAY - MAY 3, 2000 8:38 A.M.
2
3 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
4 VERSUS THE HEARST CORPORATION, ET AL.
5 COUNSEL, YOUR APPEARANCES FOR THE RECORD, PLEASE.
6 MR. HALLING: GARY HALLING FOR THE HEARST
7 CORPORATION.
8 THE COURT: ONE COUNSEL PER PARTY. MR. BALABANIAN?
9 MR. HOCKETT: CHRISTOPHER HOCKETT FOR EXIN LLC.
10 MR. ROSCH: TOM ROSCH FOR CHRONICLE PUBLISHING
11 COMPANY.
12 MR. ALIOTO: JOSEPH ALIOTO FOR THE PLAINTIFF.
13 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
14 ALL: GOOD MORNING, YOUR HONOR.
15 THE COURT: WE HAVE A MOTION IN LIMINE WHICH WAS
16 FILED YESTERDAY BY MR. ROSCH CONCERNING THE TESTIMONY OF
17 DR. COMANOR. I DON'T HAVE THAT IN FRONT OF ME AT THE MOMENT.
18 IT'S A FAIRLY NARROW MOTION IN LIMINE, AND I'M INCLINED TO
19 THINK THAT WE CAN HANDLE THE MATTER DURING THE TESTIMONY OF THE
20 WITNESS.
21 LET ME ASK MR. ALIOTO WHAT RESPONSE HE HAS TO THE
22 MOTION IN LIMINE.
23 MR. ALIOTO: MR. SHULMAN WILL BE CONDUCTING THE
24 EXAMINATION.
25 THE COURT: VERY WELL. 388
1 MR. SHULMAN: MAY IT PLEASE THE COURT, GOOD MORNING,
2 YOUR HONOR.
3 MAY RESPONSE IS THAT ONE OF THE TESTS OF DR. COMANOR
4 AS AN ECONOMIST IS TO ANALYZE THE EFFECTS OF THE ACQUISITION ON
5 COMPETITION. IN ORDER TO DO THAT, MR. COMANOR HAS TO SELECT
6 BETWEEN WHAT THE CASE LAW HAS RECOGNIZED SINCE THE TRANS
7 MISSOURI FREIGHT CASE IN 1897 AS DIFFERENT MODELS OF
8 COMPETITION. ONE MODEL IS THE SO-CALLED ALLOCATIVE EFFICIENCY
9 MODEL, WHICH IS WHAT COUNSEL FOR THE DEFENDANTS PROPOUND. THE
10 OTHER MODEL IS A MODEL THAT FOCUSES ON PRESERVING THE NUMBER OF
11 COMPETITORS, AND THAT IS A -- THAT IS A MODEL OF COMPETITION
12 THAT'S RECOGNIZED IN ECONOMIC LITERATURE AS WELL AS IN SUPREME
13 COURT CASES FOR MORE THAN A CENTURY, MOST RECENTLY ASPEN
14 SKIING.
15 DR. COMANOR IN MAKING THAT ANALYSIS AND DECISION IN
16 THIS CASE DID TAKE INTO ACCOUNT THE EXISTENCE OF THE NEWSPAPER
17 PRESERVATION ACT WHICH LED HIM TO THE BELIEF THAT THE PROPER
18 MODEL OF COMPETITION FOR HIM TO USE AS AN ECONOMIST IN THIS
19 CASE IS ONE THAT TALKS ABOUT PRESERVING THE NUMBER OF
20 COMPETITORS. THAT'S MY ANSWER.
21 THE COURT: VERY WELL. MR. ROSCH?
22 MR. ROSCH: YOUR HONOR, THAT CHOICE IS FOR YOU AND
23 YOU ALONE. DR. COMANOR IS NOT AN EXPERT ON THIS SUBJECT. THE
24 SUBJECT UPON WHICH HE IS GOING TO OPINE THAT WE'RE COMPLAINING
25 ABOUT IS NOT A SUBJECT FOR EXPERT TESTIMONY IN ANY EVENT, BUT 389
1 SURELY HE IS NOT AN EXPERT; AND YOU, YOUR HONOR, ARE GOING TO
2 HAVE TO DECIDE WHAT THE PROPER STANDARD IS.
3 THE COURT: WELL, CERTAINLY THE COURT IS GOING TO
4 HAVE TO MAKE A DECISION ABOUT THE APPLICABLE LAW. TO THE
5 EXTENT THAT DIFFERENT LEGAL STANDARDS MAY INFORM THE EXPERT'S
6 TESTIMONY, I THINK IT IS APPROPRIATE FOR AN EXPERT TO TESTIFY
7 ON HIS UNDERSTANDING OF THAT STANDARD AND THEN USE THAT AS THE
8 PREDICATE FOR HIS EXPERT TESTIMONY.
9 SO I UNDERSTAND YOUR POSITION AND I AGREE ENTIRELY
10 THAT THE RESPONSIBILITY FOR DECIDING THE APPLICABLE LEGAL
11 STANDARD IS THAT OF THE COURT'S, AND THE COURT WILL ASSUME THAT
12 RESPONSIBILITY AND ATTEMPT TO DISCHARGE IT; BUT I'M RELUCTANT
13 TO PUT TOO NARROW A BOUNDARY ON THE WITNESS' TESTIMONY INASMUCH
14 AS THERE IS OBVIOUSLY AN OVERLAP THAT EXISTS BETWEEN THE
15 APPROPRIATE LEGAL STANDARD AND THE ECONOMIC CONCLUSIONS WHICH
16 AN ECONOMIC EXPERT DRAWS.
17 NONETHELESS, YOU CAN REST ASSURED THAT I'M NOT GOING
18 TO ABROGATE MY RESPONSIBILITIES TO AN EXPERT WITNESS. AND SO
19 IF YOU THINK THE TESTIMONY IS GETTING TOO FAR AFIELD, YOU FEEL
20 THAT THE EXPERT IS INSTRUCTING THE COURT ON WHAT LAW TO APPLY,
21 YOU CAN CERTAINLY MAKE AN OBJECTION; BUT I THINK I UNDERSTAND
22 THE RESPECTIVE ROLES OF THE EXPERT WITNESS AND THE COURT IN
23 THIS MATTER.
24 MR. ROSCH: THANK YOU, YOUR HONOR.
25 THE COURT: SO WITH THAT IN MIND, ARE YOU READY TO 390
1 CALL -- WELL, NOT QUITE. MR. HALLING?
2 MR. HALLING: YOUR HONOR, YOU ASKED A QUESTION AT
3 THE END OF THE DAY YESTERDAY ABOUT PLAINTIFF'S EXHIBIT 3 AND
4 THE VARIOUS NEWSPAPERS LISTED, AND YOU WANTED TO KNOW WHO WAS
5 THE OWNER OF EACH.
6 THE COURT: YES.
7 MR. HALLING: WE WANTED TO BE RESPONSIVE, AND WE
8 MADE SURE WE HAD IT RIGHT. WE CHECKED WITH THE AGENCY LAST
9 NIGHT. WE DISTRIBUTED THIS TO COUNSEL LAST EVENING. I DON'T
10 THINK THERE'S ANY OBJECTION TO IT. WE MADE IT INTO AN EXHIBIT
11 LISTING THE NEWSPAPERS ON EXHIBIT 3 AND THEN THE OWNER OF EACH.
12 THE COURT: FINE.
13 MR. HALLING: THIS IS EXHIBIT 1183.
14 MR. SHULMAN: NO OBJECTION, YOUR HONOR.
15 THE COURT: VERY WELL. 1183 WILL BE RECEIVED.
16 (DEFENDANTS' EXHIBIT H-1183
17 RECEIVED IN EVIDENCE)
18 THE COURT: 1183?
19 MR. HALLING: 1183.
20 THE COURT: THANK YOU, SIR. ALL RIGHT. THANK YOU
21 FOR RESPONDING TO THAT SO PROMPTLY.
22 MR. ALIOTO: IF IT PLEASE YOUR HONOR, I WOULD LIKE
23 TO MAKE A MOTION, IF I MIGHT. I'D LIKE TO STATE THE MOTION
24 FIRST, THEN I'D LIKE TO STATE THE GROUNDS FOR IT.
25 THE MOTION I'D LIKE TO MAKE IS FOR AN ORDER OF THE 391
1 COURT PROHIBITING HEARST FROM TAKING ANY KIND OF EMPLOYMENT,
2 ADVERSE EMPLOYMENT ACTION AGAINST ANY WITNESS IN THIS CASE
3 BECAUSE OF OR BY REASON OF THE TESTIMONY THE WITNESS GIVES IN
4 THE OPEN COURT.
5 YESTERDAY, I RESPECTFULLY INFORM THE COURT, THAT MR.
6 WHITE, WHO WAS THE PUBLISHER OF THE EXAMINER AND SUPPOSED TO BE
7 THE PUBLISHER OF THE NEW PAPER IF THE ACQUISITION EVER WENT
8 THROUGH, WAS EUPHEMISTICALLY RELIEVED, OTHERWISE KNOWN AS BEING
9 FIRED. HE WAS FIRED FOR TESTIMONY HE GAVE IN THIS CASE
10 SPECIFICALLY.
11 AND I WOULD POINT OUT TO THE COURT THAT THE POINT OF
12 THIS IS THAT HE HAD GIVEN THAT TESTIMONY, THAT VERY TESTIMONY,
13 ON DECEMBER 16, 1999, IN NEW YORK WHEN HE TESTIFIED BEFORE THE
14 JUSTICE DEPARTMENT. AND THAT'S AT PAGE 243 OF HIS DEPOSITION
15 IN THAT PROCEEDING FROM LINE 18 THROUGH TO LINE 22, WHICH I
16 WOULD LIKE TO READ INTO THE RECORD. AND AT THAT TIME HE WAS
17 ASKED THIS QUESTION AND GAVE THIS ANSWER:
18 "Q. WERE YOU INTENDING TO CONVEY TO MAYOR
19 BROWN THAT HIS SUPPORT FOR HEARST'S PROPOSED
20 ACQUISITION OF THE CHRONICLE WOULD RESULT IN
21 MORE FAVORABLE TREATMENT IN THE EXAMINER?
22 "A. YEAH."
23 SO THAT TESTIMONY WAS GIVEN, AND AT THAT TIME
24 COUNSEL FOR HEARST OBVIOUSLY WAS THERE. HEARST WAS AWARE OF
25 THIS, AND SO APPARENTLY THEY HAVE FIRED THIS MAN NOT BECAUSE OF 392
1 THE INFORMATION ITSELF BUT BECAUSE IT WAS REVEALED IN A PUBLIC
2 FORUM.
3 WE THINK THAT THIS WILL HAVE A CHILLING EFFECT ON
4 THE REMAINING EXECUTIVES OF THE HEARST CORPORATION WHO COME TO
5 TESTIFY.
6 THE PARTICULAR DOCUMENT THAT WAS USED WITH THE
7 WITNESS WHITE THAT PRECIPITATED THE TESTIMONY, WHICH WAS THE
8 SAME TESTIMONY HE GAVE IN DECEMBER, WAS EXHIBIT 78. EXHIBIT 78
9 WAS SENT TO MR. IRISH. MR. IRISH PASSED IT ON TO MR. BENNACK,
10 TO MR. GANZI, TO MR. ASHER AND TO MR. THACKERAY.
11 MR. THACKERAY -- I MEAN, MR. THACKERAY AND, OF COURSE, COUNSEL
12 FOR HEARST WERE PRESENT IN DECEMBER OF 1999.
13 WE ARE VERY CONCERNED THAT WE FEEL THAT IF ANYONE
14 FEELS, ANYONE IN THIS TRIAL FEELS THAT THEIR JOB IS IN JEOPARDY
15 IF THEY ANSWER TRUTHFULLY, THAT THAT WILL HAVE A CHILLING
16 EFFECT ON THE ASCERTAINMENT OF THE TRUTH.
17 NOW, WE WOULD THEREFORE MOVE THE COURT TO ORDER AT
18 LEAST THE DEFENDANT HEARST AND PROHIBIT THE DEFENDANT HEARST
19 FROM TAKING ANY KIND OF ADVERSE EMPLOYMENT ACTION AGAINST
20 ANYONE WHO TESTIFIES IN THIS TRIAL FOR TESTIMONY THAT THE
21 WITNESS GIVES.
22 THE COURT: THAT'S A VERY SERIOUS MATTER THAT YOU'RE
23 RAISING, MR. ALIOTO.
24 MR. ALIOTO: YES.
25 THE COURT: ESSENTIALLY WHAT YOU'RE SUGGESTING IS 393
1 THE POSSIBILITY OF WITNESS TAMPERING.
2 MR. ALIOTO: IT'S NOT IN SO MUCH -- WELL, IT'S CLOSE
3 TO IT. I BELIEVE THAT IT'S VERY CLOSE TO OBSTRUCTION OF
4 JUSTICE IN THE SENSE THAT IT INTIMIDATES WITNESSES.
5 NOW, THIS MAN WHO CAME OUT HERE FROM ALBANY, CAME IN
6 JANUARY 1999, WAS THE PUBLISHER HERE, TESTIFIED FREELY AND
7 OPENLY, GAVE THAT -- GAVE THAT VERY MEMO TO THE TOP OFFICIALS
8 IN THE HEARST ORGANIZATION, TESTIFIED FREELY IN FRONT OF THE
9 DEPARTMENT OF JUSTICE AND THEN WHEN HE CAME -- AND THAT WAS IN
10 DECEMBER. NO ACTION WAS TAKEN AGAINST HIM THEN.
11 AND THEN HE COMES HERE, HE TESTIFIES MONDAY I THINK
12 IN THIS TRIAL, AND HE WAS RELIEVED YESTERDAY FOR THE TESTIMONY
13 HE GAVE IN THIS TRIAL. AND SO WE WOULD MOVE THE COURT TO ORDER
14 HEARST, FOR THAT MATTER CHRONICLE OR ANYONE ELSE, THAT UNDER NO
15 CIRCUMSTANCES CAN ANY KIND OF RETALIATORY ACTION OR ESPECIALLY
16 EMPLOYMENT ACTION -- THIS MAN'S CAREER IS FINISHED. HE WAS
17 FIRED, AND WE WOULD MOVE THAT THE COURT PROHIBIT ANYONE FROM
18 TAKING ANY RETALIATORY ACTION FOR ANY TESTIMONY GIVEN IN THIS
19 TRIAL. THANK YOU.
20 THE COURT: MR. HALLING?
21 MR. HALLING: YOUR HONOR, I THINK THIS IS A SHABBY
22 POLITICAL STUNT THAT MR. ALIOTO IS PULLING. THERE ARE TWO
23 WITNESSES FROM THE HEARST CORPORATION THAT ARE TO TESTIFY IN
24 THIS TRIAL THAT HE'S SUGGESTING ARE GOING TO BE INTIMIDATED.
25 FIRST, SENIOR VICE PRESIDENT MR. ASHER, AND THE PRESIDENT, 394
1 MR. BENNACK. THAT'S WHO HE'S TALKING ABOUT.
2 THIS ISSUE IS IRRELEVANT TO THE CASE, AS WE POINTED
3 OUT IN THE OPENING STATEMENT. I OBJECTED TO THIS TESTIMONY
4 FROM MR. WHITE. MR. WHITE HAS NOT BEEN FIRED. HE IS ON LEAVE
5 WHILE THE MATTER IS BEING INVESTIGATED. THIS IS AN ISSUE OF
6 JOURNALISTIC ETHICS AND IT'S NOT AN ISSUE THAT'S RELEVANT TO
7 ANYTHING IN THIS CASE.
8 AND I WOULD NOTE, YOUR HONOR, IN TERMS OF HIS
9 ACCUSATIONS, WHICH ARE ENTIRELY UNFOUNDED, IF YOU LOOK AT THIS
10 E-MAIL THAT STARTED ALL THIS, IT SAYS:
11 "I ASKED WILLIE HOW I WAS GOING TO JUSTIFY
12 TO MY SUPERIORS IN NEW YORK WANTING TO SUPPORT
13 HIM AND COOPERATE WITH HIM WHEN HE WAS SEEMINGLY
14 TO GO OUT OF HIS WAY TO MAKE OUR LIVES
15 DIFFICULT."
16 THAT'S WHAT THE E-MAIL SAYS. CERTAINLY AMBIGUOUS.
17 IN HIS DEPOSITION, WHICH MR. ALIOTO TOOK --
18 THE COURT: WHAT EXHIBIT NUMBER IS THAT?
19 MR. ALIOTO: 78.
20 MR. HALLING: THAT'S 78.
21 (PAUSE IN PROCEEDINGS.)
22 MR. HALLING: IT'S THE SECOND PARAGRAPH AFTER THE
23 FIRST SENTENCE.
24 THE COURT: YES.
25 MR. HALLING: THEN IN HIS DEPOSITION, AND THIS IS AT 395
1 PAGE 224 THAT MR. ALIOTO TOOK, THIS IS THE EXTENT OF THE
2 TESTIMONY --
3 THE COURT: THIS IS THE DEPOSITION IN THIS CASE?
4 MR. HALLING: IN THIS CASE, CORRECT.
5 THE COURT: RATHER THAN THE JUSTICE DEPARTMENT.
6 MR. HALLING: CORRECT.
7 "Q. WELL, WAS HE ASKING YOU FOR YOUR
8 ENDORSEMENT?
9 "A. NO.
10 "Q. WHAT DOES IT MEAN TO JUSTIFY TO YOUR
11 SUPERIORS IN NEW YORK? WHAT DID YOU HAVE TO
12 JUSTIFY TO THEM?
13 "A. IT WAS A BROAD, VAGUE STATEMENT. I
14 DON'T NEED TO JUSTIFY ANYTHING TO THEM
15 EDITORIALLY, BUT I THOUGHT HE MIGHT BELIEVE THAT
16 I DID."
17 SO THAT'S THE E-MAIL. THAT'S THE TESTIMONY PRIOR TO
18 HIM COMING HERE.
19 NOW, IN THE CID DEPOSITION, THE PART THAT MR. ALIOTO
20 CROSS-EXAMINED HIM ON WHERE HE USED THE TERM "HORSE TRADING,"
21 IF I RECALL, REMEMBER I OBJECTED ON A COUPLE OF GROUNDS AND IT
22 WAS READ INTO THE RECORD AS IMPEACHMENT AND THE WORDS "HORSE
23 TRADING" APPEARED, THAT WAS THE CID DEPOSITION, PAGE 228, WHICH
24 WAS READ IN THE TRIAL RECORD AT PAGE 131 OF MR. WHITE'S
25 TESTIMONY. 396
1 THAT TESTIMONY ABOUT HORSE TRADING DID NOT DEAL WITH
2 THIS E-MAIL. IT DIDN'T DEAL WITH THIS ISSUE. IT HAD TO DO
3 WITH WHETHER OR NOT THE MAYOR WAS LINKING THE SETTLEMENT OF
4 ANOTHER LAWSUIT WITH PAN-ASIA, WHETHER THAT WAS BEING LINKED
5 WITH THE ACQUISITION THAT'S AT ISSUE IN THIS CASE. IT HAD
6 NOTHING TO DO WITH THIS ISSUE.
7 AND THEN HE GOT MR. WHITE TO SAY -- HE USED THAT
8 TERM "HORSE TRADING" IN VERY AGGRESSIVE CROSS-EXAMINATION THAT
9 WAS SKILLFUL, I MIGHT ADD, AND HE GOT MR. WHITE TO USE THAT
10 WORD "HORSE TRADING" IN ANOTHER CONTEXT.
11 AND IN THE TRIAL TESTIMONY MR. WHITE AT ONE POINT
12 SAID, AND THIS IS AT PAGE, YOU KNOW, 140, WERE YOU INTENDING TO
13 CONVEY -- I'M NOT READING THE TEXT OF THE QUESTION, BUT IT WAS
14 TO THE POINT OF WERE YOU INTENDING TO CONVEY THAT HIS SUPPORT
15 WOULD RESULT IN MORE FAVORABLE TREATMENT, AND THE ANSWER MR.
16 WHITE GAVE WAS, "NOT THAT SPECIFICALLY."
17 THEN LATER HE CHANGED THAT TESTIMONY AND FINALLY IN
18 OPEN COURT HE MADE SOME STATEMENTS THAT CAUSED SOME CONCERN AT
19 THE COMPANY BECAUSE IT WENT TO AN ISSUE OF JOURNALISTIC ETHICS,
20 WHICH HAS NOTHING TO DO WITH THE ANTITRUST ISSUES IN THIS CASE.
21 THIS IS A SIDESHOW. THIS IS AN ATTEMPT TO DEFAME
22 THIS -- THIS WITNESS WAS VERY AGGRESSIVELY CROSS-EXAMINED BY
23 MR. ALIOTO. THERE WAS NOTHING IN HIS CID DEPOSITION, INCLUDING
24 THE PASSAGE HE READ AND THE PASSAGE THAT HE MISUSED AT HIS
25 CROSS-EXAMINATION THAT WOULD BE ANY SORT OF JUSTIFICATION FOR 397
1 THESE KINDS OF CHARGES.
2 THE COURT: WELL --
3 MR. ALIOTO: YOUR HONOR, IF IT PLEASE THE COURT, I
4 WOULD LIKE TO STATE THAT THE ONLY REASON THAT I DID NOT USE
5 THIS PORTION OF THE JUSTICE DEPARTMENT DEPOSITION WAS BECAUSE
6 HE ADMITTED IT. BUT IF HE DIDN'T ADMIT IT, I WOULD LIKE TO
7 READ IN THE RECORD ABOUT THIS VERY MEMO IN WHICH HE WAS ASKED
8 BEGINNING ON 242:
9 "Q. WHAT DID YOU INTEND TO CONVEY TO MAYOR
10 BROWN WITH THE TERM 'SUPPORT HIM AND COOPERATE
11 WITH HIM'?
12 "A. HMM, JUST HARKING BACK TO AN EARLIER
13 CONVERSATION OF AN EARLIER LUNCH THAT I FELT SAN
14 FRANCISCO WAS A CITY WITH A LOT OF PROBLEMS AND
15 THAT WE WOULD GET THEM SOLVED BETTER WORKING
16 TOGETHER RATHER THAN WORKING AT ODDS.
17 "Q. WORKING TOGETHER MEANING THE MAYOR'S
18 OFFICE AND THE EXAMINER?
19 "A. YEAH, BUT IN A COMMUNITY CIVIC ACTION
20 KIND OF WAY.
21 "Q. WAS THE EXAMINER RUNNING ANY STORIES
22 CRITICAL OF MAYOR BROWN AT THIS TIME?
23 "A. YES.
24 "Q. WHAT WERE THOSE STORIES ABOUT?
25 "A. HMM, GOD, PICK A TOPIC. MUNI 398
1 OPERATIONS, HIS BAD HANDLING OF THE HOMELESS,
2 CONTINUING FBI INVESTIGATIONS OF CRONYISM ON
3 CITY-FUNDED PROJECTS.
4 "Q. ANYTHING ELSE?
5 "A. PROBABLY. I DON'T REMEMBER EXPLICITLY.
6 "Q. WERE YOU INTENDING TO CONVEY TO MAYOR
7 BROWN THAT HIS SUPPORT FOR HEARST'S PROPOSED
8 ACQUISITION OF THE CHRONICLE WOULD RESULT IN
9 MORE FAVORABLE TREATMENT IN THE EXAMINER?
10 "A. YEAH."
11 SO I HAD THAT EVIDENCE AND I HAD THAT TESTIMONY.
12 AND THEN WHEN I ASKED THE WITNESS THAT, IF HE DENIED IT, I WAS
13 GOING TO IMPEACH HIM AGAIN.
14 SO THE POINT IS, IS THAT THE EVIDENCE HAS ALREADY --
15 THE EVIDENCE WAS ALREADY THERE BEFORE THE EXAMINER HEARST
16 CORPORATION. THEY HAD IT IN DECEMBER. SO THE MAN WAS NOT
17 FIRED FOR GIVING THE SAME TESTIMONY THAT HE HAD GIVEN BEFORE.
18 HE WAS FIRED FOR GIVING IT IN THIS PUBLIC FORUM.
19 MR. HALLING: YOUR HONOR, HE WASN'T FIRED. HE HAS
20 NOT BEEN FIRED.
21 MR. ALIOTO: THAT'S ALL I HAVE, SIR.
22 MR. HALLING: HE'S BEING -- THERE'S AN INVESTIGATION
23 BEING DONE THAT HAS NOTHING TO DO WITH ANY OF THE ISSUES IN
24 THIS CASE. THIS IS PURELY A MATTER OF JOURNALISTIC ETHICS.
25 THE COURT: WELL, I'M NOT AT ALL SURE, MR. HALLING, 399
1 THAT THE TESTIMONY OF MR. WHITE IN THE MATTERS THAT HE
2 TESTIFIED ABOUT ARE IRRELEVANT TO THIS CASE BY ANY MEANS. THE
3 TESTIMONY WHICH HE GAVE I THINK DOES HAVE A BEARING ON THE
4 ISSUES IN THIS CASE.
5 NOW, MR. ALIOTO IS RAISING ANOTHER ISSUE, AND THAT
6 IS WHETHER THE COURT SHOULD TAKE SOME ACTION TO PRECLUDE ONE OF
7 THE PARTIES FROM TAKING ADVERSE EMPLOYMENT ACTION AGAINST A
8 WITNESS WHO APPEARS AND TESTIFIES IN THIS CASE. AS I
9 UNDERSTAND IT, THE TWO HEARST WITNESSES WHO REMAIN ARE
10 MR. BENNACK AND MR. IRISH.
11 MR. HALLING: NO, IT'S MR. BENNACK AND MR. ASHER.
12 THE COURT: MR. ASHER. BOTH OF WHOM ARE RECIPIENTS
13 OF THE WHITE --
14 MR. ALIOTO: YES, YOUR HONOR.
15 THE COURT: -- THE WHITE MEMORANDUM. LET'S SEE,
16 WHAT'S THE DATE OF IT?
17 MR. ALIOTO: THE WHITE MEMORANDUM WAS SENT
18 ORIGINALLY, THE E-MAIL --
19 THE COURT: AUGUST 31.
20 MR. ALIOTO: CORRECT. IT WAS SENT TO MR. IRISH WHO
21 IS SUPPOSED TO BE IN CHARGE OF THIS INVESTIGATION, SO-CALLED
22 INVESTIGATION. MR. IRISH IN TURN THEN SENDS IT TO MR. BENNACK,
23 TO MR. GANZI, TO MR. ASHER AND TO MR. THACKERAY.
24 THE COURT: WELL, ESSENTIALLY WHAT MR. ALIOTO IS
25 RAISING IS A POSSIBILITY OF WITNESS TAMPERING. IT'S A VERY 400
1 SERIOUS CHARGE. I'M NOT GOING TO LEAD TO ANY CONCLUSION ON A
2 SUBJECT OF THAT MAGNITUDE AND SERIOUSNESS.
3 EVIDENTLY, BASING THIS ON PRESS REPORTS, MR. WHITE
4 WAS THE SUBJECT OF SOME INTERNAL INVESTIGATION AT THE HEARST
5 CORPORATION.
6 MR. HALLING: AND I MIGHT ADD, TO CORRECT WHAT
7 MR. ALIOTO JUST SAID, MY UNDERSTANDING IS THE INVESTIGATION IS
8 GOING TO BE CONDUCTED BY AN OUTSIDER, PERHAPS A RETIRED JUDGE
9 OR PROSECUTOR. IT IS NOT GOING TO BE CONDUCTED BY MR. IRISH.
10 THE COURT: WELL, IN ANY EVENT, IT'S MY
11 UNDERSTANDING THAT THE MATTER IS PRESENTLY UNDER AN INTERNAL
12 INVESTIGATION. I THINK IT WOULD BE PRECIPITOUS TO CONCLUDE
13 THAT WHAT THAT INVESTIGATION ENTAILS IS AN ATTEMPT TO
14 INTIMIDATE A WITNESS OR TO INTIMIDATE OTHER WITNESSES, AND SO
15 I'M NOT GOING TO MAKE THAT LEAP BASED UPON THIS RECORD.
16 SO THE MOTION WILL BE DENIED, BUT OBVIOUSLY THE
17 COURT IS GRAVELY CONCERNED ABOUT ANY EFFORT ON THE PART OF ANY
18 PARTY TO MANIPULATE THE TESTIMONY OF ANY WITNESS. AND IF THERE
19 IS EVIDENCE OF THAT SORT OF CONDUCT, WHY THE COURT MAY BE
20 COMPELLED TO TAKE ACTION, BUT I DON'T THINK THAT EVIDENCE IS
21 YET BEFORE THE COURT.
22 MR. HALLING: YOUR HONOR, I CAN ASSURE YOU ON BEHALF
23 OF MY CLIENT THAT NO SUCH ACTION IS TAKEN.
24 THE COURT: VERY WELL. ALL RIGHT, MR. ALIOTO, ARE
25 YOU READY WITH YOUR NEXT -- MR. SHULMAN, ARE YOU READY WITH 401
COMANOR - DIRECT / SHULMAN
1 YOUR NEXT WITNESS?
2 MR. ALIOTO: MR. SHULMAN.
3 MR. SHULMAN: MAY IT PLEASE THE COURT, THE PLAINTIFF
4 CALLS TO THE STAND DR. WILLIAM S. COMANOR.
5 THE CLERK: PLEASE RAISE YOUR RIGHT HAND.
6 WILLIAM S. COMANOR,
7 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN DULY SWORN,
8 TESTIFIED AS FOLLOWS:
9 THE CLERK: PLEASE BE SEATED.
10 STATE YOUR FULL NAME AND SPELL YOUR LAST NAME.
11 THE WITNESS: WILLIAM S. COMANOR, C-O-M-A-N-O-R.
12 DIRECT EXAMINATION
13 BY MR. SHULMAN:
14 Q. AND, DR. COMANOR, WHAT IS YOUR HOME ADDRESS?
15 A. 519 SOUTH ARDEN BOULEVARD, LOS ANGELES.
16 Q. AND WHAT IS -- WOULD YOU STATE FOR THE COURT YOUR
17 EMPLOYMENT, PLEASE.
18 A. I AM PROFESSOR OF ECONOMICS AT THE UNIVERSITY OF
19 CALIFORNIA SANTA BARBARA AND ALSO PROFESSOR OF HEALTH SERVICES
20 AT U.C.L.A.
21 Q. OKAY. I'M GOING TO DIRECT YOUR ATTENTION TO YOUR
22 CURRICULUM VITAE WHICH HAS BEEN STIPULATED INTO EVIDENCE AS
23 ACTUALLY CHRONICLE EXHIBIT 343. IT'S THE SAME AS PLAINTIFF'S
24 EXHIBIT 148.
25 MR. SHULMAN: SO IF YOU COULD PUT THE FIRST PAGE OF 402
COMANOR - DIRECT / SHULMAN
1 THAT UP.
2 MAY I APPROACH THE WITNESS, YOUR HONOR?
3 THE COURT: YES, YOU MAY.
4 THE WITNESS: I APOLOGIZE FOR MY COUGH, YOUR HONOR.
5 THE COURT: I UNDERSTAND AND EXPERIENCE THE SAME
6 THING FROM TIME TO TIME, SO DON'T WORRY ABOUT IT. WE HAVE
7 REMEDIES FOR THE PROBLEM IF IT PERSISTS.
8 THE WITNESS: THANK YOU.
9 BY MR. SHULMAN:
10 Q. NOW, DR. COMANOR, WOULD YOU JUST VERY BRIEFLY RUN OVER
11 YOUR EDUCATIONAL BACKGROUND FOR US?
12 A. YES. I GRADUATED IN 1959 FROM HAVERFORD COLLEGE IN
13 PENNSYLVANIA WITH HIGH HONORS IN ECONOMICS. AND I RECEIVED MY
14 PH.D. IN ECONOMICS FROM HARVARD UNIVERSITY IN 1964. AND I
15 SPENT ONE YEAR POST-DOCTORAL STUDY AT THE LONDON SCHOOL OF
16 ECONOMICS 1963-'64.
17 Q. OKAY. IF WE CAN GO TO THE SECOND PAGE, CAN YOU DESCRIBE
18 FOR US YOUR PROFESSIONAL CAREER?
19 A. YES. I REMAINED AT HARVARD UNIVERSITY AS AN ASSISTANT
20 PROFESSOR OF ECONOMICS AFTER RECEIVING MY PH.D.
21 NOW I'M GOING TO TALK ABOUT MY ACADEMIC POSITIONS.
22 I MOVED TO STANFORD AS AN ASSOCIATE PROFESSOR IN THE GRADUATE
23 SCHOOL OF BUSINESS FROM 1968 TO 1973. I TAUGHT FOR A YEAR IN
24 CANADA AT THE UNIVERSITY OF WESTERN ONTARIO ALSO IN ECONOMICS,
25 AND RETURNED TO HARVARD UNIVERSITY AS A VISITING PROFESSOR 403
COMANOR - DIRECT / SHULMAN
1 '64-'65.
2 AND THEN SINCE 19 -- SINCE 1975 I SHOULD HAVE SAID.
3 SINCE 1975 I HAVE BEEN PROFESSOR OF ECONOMICS AT THE UNIVERSITY
4 OF CALIFORNIA SANTA BARBARA; AND, AS YOU CAN SEE, I WAS
5 CHAIRMAN OF THE DEPARTMENT OF ECONOMICS AT U.C.S.B. IN THE
6 MID-'80'S.
7 I WAS VISITING PROFESSOR OF LAW AT U.C.L.A. FOR TWO
8 YEARS 1988 TO 1990. I BECAME A VISITING PROFESSOR OF PUBLIC
9 HEALTH FOR TWO SUCCEEDING YEARS, AND THEN I RECEIVED AN
10 APPOINTMENT IN THE DEPARTMENT OF HEALTH SERVICES AT U.C.L.A.
11 AND HAVE BEEN A PROFESSOR OF HEALTH SERVICES SINCE 1993.
12 SO THOSE ARE MY ACADEMIC POSITIONS.
13 Q. OKAY.
14 A. IN ADDITION TO THAT, I'VE HAD TWO POSITIONS IN THE FEDERAL
15 GOVERNMENT.
16 Q. OKAY. WOULD YOU STATE WHAT THOSE ARE, PLEASE, AND WHEN
17 YOU HELD THEM?
18 A. IN 1965-'66 I WAS SPECIAL ECONOMIC ASSISTANT TO DON TURNER
19 WHEN HE WAS CHIEF OF THE ANTITRUST DIVISION IN THE U.S.
20 DEPARTMENT OF JUSTICE. SO I WORKED DIRECTLY WITH THE ASSISTANT
21 ATTORNEY GENERAL FOR ANTITRUST.
22 AND THEN AGAIN IN 1978 THROUGH 1980 I WAS THE CHIEF
23 ECONOMIST AND DIRECTOR OF THE BUREAU OF ECONOMICS AT THE
24 FEDERAL TRADE COMMISSION IN WASHINGTON WHERE I WAS RESPONSIBLE
25 FOR ALL OF THE ECONOMIC ACTIVITIES AT THE FTC AT THAT TIME. 404
COMANOR - DIRECT / SHULMAN
1 THE COURT: EXCUSE ME, MR. SHULMAN, DID YOU SAY THE
2 CURRICULUM VITAE OF THIS WITNESS IS EXHIBIT 343?
3 MR. SHULMAN: THAT IS THE -- YES, IT IS CHRONICLE
4 343. WE HAD ALSO MARKED IT AS A PLAINTIFF EXHIBIT AND IT IS
5 THE SAME AS PLAINTIFF EXHIBIT 148.
6 MR. ALIOTO: 148.
7 MR. SHULMAN: 148, BUT THAT HAS NOT BEEN STIPULATED
8 INTO EVIDENCE OUR EXHIBIT, SO WE'RE USING THE CHRONICLE NUMBER.
9 THE COURT: BUT IT'S THE SAME EXHIBIT?
10 MR. SHULMAN: SAME THING, YOUR HONOR.
11 THE COURT: VERY WELL. I'M SORRY FOR THE
12 INTERRUPTION.
13 BY MR. SHULMAN:
14 Q. DR. COMANOR, CAN YOU DESCRIBE THE TYPE AND NATURE -- THE
15 TYPES OF COURSES THAT YOU HAVE TAUGHT AS AN ACADEMICIAN?
16 A. MY FIELD OF SPECIALIZATION IS INDUSTRIAL ECONOMICS,
17 INDUSTRIAL ORGANIZATION. SO I HAVE TAUGHT COURSES IN
18 INDUSTRIAL ECONOMICS NOW FOR OVER 30 YEARS IN VARIOUS
19 INSTITUTIONS.
20 I ALSO TEACH MICROECONOMICS. I TEACH THE BASIC
21 GRADUATE COURSE IN MICROECONOMICS FOR MASTER STUDENTS AT U.C.
22 SANTA BARBARA AND I'VE DONE THAT FOR OVER 25 YEARS.
23 ONE OF MY SPECIALTIES IS ANTITRUST ECONOMICS HAVING
24 WORKED IN BOTH FEDERAL ANTITRUST AGENCIES. JUST THIS FALL I
25 GAVE A COURSE ENTITLED "THE LAW IN ECONOMICS OF THE MICROSOFT 405
COMANOR - DIRECT / SHULMAN
1 ANTITRUST CASE," IN WHICH I REVIEWED ALL THE LEGAL AND ECONOMIC
2 ISSUES DEALING WITH THAT CASE.
3 SO I HAVE WORKED IN INDUSTRIAL ECONOMICS AND
4 ANTITRUST ECONOMICS FOR MANY YEARS.
5 Q. HAVE YOU TAUGHT AT BUSINESS SCHOOLS?
6 A. YES, I HAVE. WHEN I WAS -- I TAUGHT, AS YOU CAN SEE, FOR
7 A NUMBER OF YEARS AT THE GRADUATE SCHOOL OF BUSINESS AT
8 STANFORD UNIVERSITY.
9 Q. OKAY. AND HAVE YOU TAUGHT AT LAW SCHOOLS?
10 A. YES, I HAVE. AS YOU CAN SEE, I WAS A VISITING PROFESSOR
11 OF LAW AT THE U.C.L.A. LAW SCHOOL WHERE I TAUGHT A SEMINAR IN
12 ANTITRUST LAW AS WELL AS A COURSE IN ECONOMICS FOR LAWYERS.
13 Q. YOU ARE NOT A LAWYER, HOWEVER?
14 A. I AM NOT A LAWYER.
15 Q. OKAY. IF YOU LOOK AT THE THIRD PAGE OF YOUR RESUME, YOUR
16 CV, IT BEGINS "BOOKS AND MONOGRAPHS" FOLLOWED BY "ARTICLES."
17 WE'RE NOT GOING TO GO THROUGH ALL OF THAT, BUT IF YOU COULD
18 JUST DESCRIBE BRIEFLY AND GENERALLY THE EXTENT OF YOUR
19 PUBLICATIONS.
20 A. I'VE WRITTEN A GOOD NUMBER OF ARTICLES AND BOOKS, LARGELY
21 IN INDUSTRIAL ECONOMICS. THOSE ARE FOUR BOOKS THAT I'VE
22 WRITTEN. THE FIRST IS A BOOK ON ADVERTISING AND MARKET POWER,
23 WHICH IS ON THE COMPETITIVE IMPLICATIONS OF HEAVY ADVERTISING
24 EXPENDITURES. SO THE FIRST BOOK THERE DEALS WITH THE
25 COMPETITIVE IMPLICATIONS OF HEAVY ADVERTISING EXPENDITURES. 406
COMANOR - DIRECT / SHULMAN
1 THE SECOND BOOK DEALS WITH ECONOMICS OF NATIONAL
2 HEALTH INSURANCE IN CANADA, ACTUALLY IN THE PROVINCE OF
3 ONTARIO.
4 THE THIRD AND FOURTH BOOKS THERE IN WHICH I WAS THE
5 EDITOR AND WROTE CHAPTERS IN EACH OF THESE BOOKS DEAL WITH
6 COMPETITION POLICY BOTH IN EUROPE AND THE UNITED STATES.
7 IN THE THIRD BOOK, "COMPETITION POLICY IN EUROPE AND
8 NORTH AMERICA," I WROTE THE CHAPTER ON U.S. COMPETITION POLICY,
9 U.S. ANTITRUST POLICY FROM AN ECONOMIC PERSPECTIVE.
10 Q. AND IN ADDITION TO THE BOOKS, YOU'VE WRITTEN A NUMBER OF
11 ARTICLES?
12 A. YES. I STARTED WRITING ARTICLES IN 1964 AND I GUESS I
13 STILL CONTINUE THAT, AND THEY ARE LISTED HERE.
14 Q. OKAY. APPROXIMATELY HOW MANY?
15 A. WELL, I DON'T KNOW. I HAVEN'T COUNTED THEM, BUT SOMETHING
16 APPROACHING A HUNDRED OR SOMETHING IN THAT NEIGHBORHOOD.
17 Q. OKAY. HAVE YOU TESTIFIED PREVIOUSLY AS AN EXPERT
18 ECONOMIST BEFORE CONGRESSIONAL COMMITTEES?
19 A. YES, I HAVE, ON A NUMBER OF OCCASIONS. I THINK THEY ARE
20 LISTED HERE AT THE END OF MY CV.
21 Q. THAT WOULD BE THE, LET'S SEE... BEGINNING -- YEAH, WE
22 WON'T -- THAT IS THE THIRD PAGE FROM THE END?
23 A. THAT IS CORRECT.
24 MR. SHULMAN: THE THIRD PAGE FROM THE END. IS IT
25 POSSIBLE TO FIND THAT? 407
COMANOR - DIRECT / SHULMAN
1 (PAUSE IN PROCEEDINGS.)
2 BY MR. SHULMAN:
3 Q. WHILE THEY'RE LOOKING FOR THAT, LET ME ASK YOU THIS: HAVE
4 YOU TESTIFIED AS AN EXPERT WITNESS IN ANTITRUST CASES IN
5 FEDERAL COURT?
6 A. YES, I HAVE, ON A NUMBER OF OCCASIONS.
7 Q. OKAY. CAN YOU TELL US A LITTLE BIT ABOUT THAT?
8 A. DIFFERENT CASES INVOLVE DIFFERENT SETS OF ISSUES. I GUESS
9 I'VE TESTIFIED IN MOST ISSUES DEALING WITH ANTITRUST POLICY,
10 LARGELY IN REGARD TO EXCLUSIONARY CONDUCT AND VERTICAL
11 RESTRAINTS AND FREQUENT ISSUES THAT I DEAL WITH.
12 Q. OKAY. NOW, WERE YOU RETAINED BY THE PLAINTIFF,
13 MR. REILLY, IN THIS CASE?
14 A. YES, I WAS.
15 Q. AND WERE YOU ASKED TO DO SOME WORK IN CONNECTION WITH THIS
16 CASE FOR MR. REILLY?
17 A. YES, I WAS.
18 Q. OKAY. WAS ONE OF THE AREAS IN WHICH YOU WERE ASKED TO DO
19 WORK AS AN EXPERT ECONOMIST THE QUESTION OF MARKET DEFINITION?
20 A. YES, IT WAS.
21 Q. OKAY. CAN YOU -- AND DID YOU IN FACT PERFORM WORK IN
22 CONNECTION WITH MARKET DEFINITION?
23 A. YES, I DID.
24 Q. AND IN CONNECTION WITH THAT WORK, DID YOU REACH AN
25 OPINION? 408
COMANOR - DIRECT / SHULMAN
1 A. YES, I -- YES, I HAVE.
2 Q. OKAY. BEFORE WE GET TO THAT OPINION, I WANT TO ASK YOU
3 SOME QUESTIONS ABOUT THE WORK YOU DID IN CONNECTION WITH THE
4 RELEVANT MARKET.
5 WHAT WERE THE -- IN TRYING TO REACH AN OPINION AS TO
6 WHAT THE RELEVANT MARKET IS IN THIS CASE, WHAT WERE THE....
7 (PAUSE IN PROCEEDINGS.)
8 BY MR. SHULMAN:
9 Q. .... WHAT WERE THE CRITERIA THAT YOU USED IN TRYING TO
10 ARRIVE AT AN OPINION CONCERNING WHAT THE RELEVANT MARKET IS IN
11 THIS CASE?
12 A. WELL, THERE ARE TWO SETS OF CRITERIA THAT ARE WIDELY
13 DISCUSSED. THE FIRST IS THE CLASSIC CRITERIA FOR DEFINING A
14 MARKET IN ECONOMICS WHICH TURNS ON SUBSTITUTABILITY IN USE AND
15 IN PRODUCTION WHICH IS REFLECTED IN CROSS ELASTICITIES OF
16 SUPPLY AND DEMAND, WHICH ARE REALLY THE CLASSIC CRITERIA. AND
17 I TRY TO APPLY THOSE CRITERIA TO THE FACTS OF THIS CASE.
18 Q. WHAT DOES THAT MEAN, CROSS ELASTICITY OF SUPPLY AND
19 DEMAND?
20 A. THE CROSS ELASTICITY OF DEMAND IS A PARAMETER WHICH
21 REFLECTS THAT IF THE PRICE OF PRODUCT "A" INCREASES, WHAT WILL
22 THE EFFECT OF THAT PRICE INCREASE BE ON THE DEMAND FOR PRODUCT
23 "B"; IF THE PRICE OF ONE PRODUCT GOES UP, HOW WILL THAT AFFECT
24 THE DEMAND FOR PRODUCT "B."
25 IF TWO PRODUCTS ARE HIGHLY SUBSTITUTABLE, THEN IF 409
COMANOR - DIRECT / SHULMAN
1 THE PRICE OF ONE PRODUCT GOES UP, PEOPLE WILL SHIFT AWAY FROM
2 THE PRODUCT WHICH HAD A HIGHER PRICE AND TOWARDS THE PRODUCT
3 WHICH DID NOT CHANGE ITS PRICE. SO YOU'LL SEE A HIGH VALUE FOR
4 THE CROSS ELASTICITY OF DEMAND WHICH FOLLOWS -- WHICH RESULTS
5 FROM PRODUCTS BEING HIGHLY SUBSTITUTABLE ONE FOR ANOTHER; WHERE
6 IF THE PRICE OF ONE PRODUCT GOES UP AND NOTHING HAPPENS TO THE
7 DEMAND FOR THE SECOND PRODUCT, THEN THE CROSS ELASTICITY OF
8 DEMAND IS LOW OR ZERO.
9 AND THESE PARAMETERS ARE USED BY ECONOMISTS TO
10 DEFINE A RELEVANT MARKET. WHERE CROSS ELASTICITIES OF DEMAND
11 ARE HIGH, TWO PRODUCTS ARE SAID TO BE IN THE SAME RELEVANT
12 MARKET; AND WHERE CROSS ELASTICITIES OF DEMAND ARE LOW, TWO
13 PRODUCTS ARE SAID TO BE IN DIFFERENT RELEVANT MARKETS.
14 AND YOU CAN DO THE SAME THING ON THE SUPPLY SIDE AS
15 WELL AS THE DEMAND SIDE.
16 Q. OKAY. NOW, YOU SAID THAT YOU ALSO USED A SECOND SET OF
17 CRITERIA BESIDES WHAT YOU CALLED THE CROSS ELASTICITIES OF
18 SUPPLY AND DEMAND. WHAT WAS THE SECOND CRITERIA YOU USED?
19 A. WHEN THE JUSTICE DEPARTMENT INTRODUCED THE REVISED MERGER
20 GUIDELINES IN 1982 I THINK IT WAS, THEY PROPOSED A SECOND SET
21 OF CRITERIA, AND I VIEW THEM AS PRETTY COMPARABLE BUT THEY HAVE
22 DIFFERENT TERMINOLOGY. THE JUSTICE DEPARTMENT CRITERIA, AS
23 REFLECTED IN THE MERGER GUIDELINES, IS THE FOLLOWING:
24 IF A HYPOTHETICAL MONOPOLIST WHICH REPRESENTS ALL OF
25 THE FIRMS IN A POSSIBLE MARKET COULD RAISE ITS PRICE BY 5 OR 410
COMANOR - DIRECT / SHULMAN
1 10 PERCENT AND NOT ATTRACT SUFFICIENT COMPETITION TO MAKE THAT
2 PRICE UNTENABLE, THEN THE GROUP OF FIRMS ACTING AS A
3 HYPOTHETICAL MONOPOLIST WOULD CONSTITUTE A RELEVANT MARKET.
4 BUT, AS YOU CAN SEE, THAT TURNS ON SUBSTITUTABILITY
5 AS WELL. THESE ARE TWO WAYS OF LOOKING AT WHAT I THINK ARE THE
6 SAME THING.
7 Q. OKAY. NOW -- AND IN CONNECTION WITH THE DETERMINATION OF
8 A RELEVANT MARKET, ARE THERE PRODUCT MARKET AND GEOGRAPHIC
9 MARKET DIMENSIONS TO THAT?
10 A. YES, INDEED. THESE ISSUES CAN APPLY -- ARE TYPICALLY
11 APPLIED IN TWO CONTEXTS. ONE IS WHETHER TWO PRODUCTS ARE IN
12 THE SAME PRODUCT MARKET, ONE FROM ANOTHER, OR NOT; AND THE
13 SECOND ISSUE IS WHETHER TWO PRODUCTS, PRODUCTS IN DIFFERENT
14 LOCATIONS, LIE IN THE SAME OR SEPARATE GEOGRAPHIC MARKETS. SO
15 THESE ARE TWO DIMENSIONS BY WHICH YOU CAN DEAL WITH THESE SAME
16 CRITERIA.
17 Q. AND DID YOU ATTEMPT TO REACH AN OPINION AS TO BOTH THE
18 RELEVANT PRODUCT MARKET AND THE RELEVANT GEOGRAPHIC MARKET IN
19 THIS CASE?
20 A. YES, I DID.
21 Q. OKAY. LET'S TAKE THE RELEVANT PRODUCT MARKET. WHAT WAS
22 THE NATURE OF THE INQUIRY YOU MADE TO DETERMINE THE RELEVANT
23 PRODUCT MARKET?
24 A. I SET OUT TO CONSIDER WHETHER DAILY NEWSPAPERS REPRESENT A
25 SEPARATE RELEVANT PRODUCT MARKET FROM -- AS COMPARED WITH OTHER 411
COMANOR - DIRECT / SHULMAN
1 TYPES OF MEDIA OR WHETHER THEY LIE IN A BROADER MARKET WHICH
2 INCLUDES OTHER MEDIUM.
3 Q. AND DID YOU FORM AN OPINION ON THAT?
4 A. YES, I DID.
5 Q. WHAT WAS YOUR OPINION?
6 A. MY OPINION IS THAT DAILY NEWSPAPERS REPRESENT A SEPARATE
7 RELEVANT PRODUCT MARKET.
8 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25 412
COMANOR - DIRECT / SHULMAN
1 BY MR. SHULMAN:
2 Q. CAN YOU DESCRIBE, PLEASE, THE BASIS FOR THAT OPINION?
3 A. YES.
4 THE FIRST THING I LOOKED AT WAS A SURVEY -- A STUDY
5 CONDUCTED BY THE NEWSPAPER ASSOCIATION OF AMERICA, WHICH IS
6 CALLED CONSUMER MEDIA USAGE, WHICH SEEKS TO UNDERSTAND OR
7 DESCRIBE THE DIFFERENT ROLES PLAYED BY NEWSPAPERS FROM OTHER
8 ASSOCIATED MEDIA. AND IT REALLY EMPHASIZES THE ROLE THAT
9 NEWSPAPERS PLAY IN THE RELEVANT -- IN THESE MARKETS.
10 AND I PRODUCED SOME QUOTES FROM THAT STUDY, BUT I
11 HAVE THE -- THE LARGER STUDY HERE. AND IT SEEMS TO ME THAT THE
12 EVIDENCE PRESENTED IN THAT STUDY INDICATED THAT NEWSPAPERS PLAY
13 A RATHER DISTINCT AND SEPARATE ROLE, PROVIDING A WHOLE SET OF
14 A -- A BUNDLE OF DIFFERENT SERVICES THAN ANY OTHER MEDIA DOES.
15 AS THE STUDY SAYS, THAT IT PROVES THAT NEWSPAPERS --
16 AND I AM QUOTING -- "HAVE A DEFINITE FRANCHISE IN THE
17 ADVERTISING ARENA. AGAINST BROADCAST MEDIA, DIRECT MAIL
18 MAGAZINES AND THE INTERNET, NEWSPAPERS ARE CONSISTENTLY SHOWN
19 TO BE SUPERIOR."
20 I DON'T KNOW THAT THEY ARE SUPERIOR BUT THEY ARE
21 JUST DIFFERENT. AND IT HAS A -- IT HAS A DIFFERENT ROLE TO
22 PLAY, AND THAT SEEMED TO SUGGEST TO ME THAT SUBSTITUTABILITY
23 BETWEEN NEWSPAPERS AND OTHER RELEVANT PRODUCTS COULD BE
24 SUFFICIENTLY LOW THAT ONE SHOULD CONCLUDE THAT THIS IS A
25 SEPARATE RELEVANT PRODUCT MARKET. 413
COMANOR - DIRECT / SHULMAN
1 Q. AND --
2 THE COURT: IS IT FAIR TO SAY THAT NEWSPAPERS PLAY A
3 UNIQUE ROLE?
4 THE WITNESS: I THINK THAT'S RIGHT. THEY HAVE A --
5 A DIFFERENT BUNDLE OF SERVICES THAN ANY OTHER PRODUCT.
6 BY MR. SHULMAN:
7 Q. WHEN YOU SAY "DIFFERENT BUNDLE OF SERVICES," CAN YOU GIVE
8 US AN EXAMPLE OF THAT?
9 A. YES, I CAN.
10 IF YOU -- ON PAGE 5 OF THIS NEWSPAPER ASSOCIATION
11 GUIDE, IT EMPHASIZES THAT THE EDITORIAL CONTENT OF NEWSPAPERS
12 IN WHICH CONSUMERS HAVE A PRIMARY INTEREST IN, IS -- IS WRITTEN
13 DOWN. AND I WILL READ IT:
14 "WHETHER LOCAL COMMUNITY AND NEIGHBORHOOD
15 NEWS, NEWS AND INFORMATION, IT HELPS YOUR
16 COMMUNITY DEAL WITH PROBLEMS, INVESTIGATION OF
17 IMPORTANT ISSUES, WORLD AND NATIONAL NEWS, STATE
18 NEWS, CRIME NEWS AND SO FORTH."
19 NOW, THERE ARE OTHER PRODUCTS WHICH HAVE SOME OF
20 THESE ISSUES BUT NOT ALL OF THEM. AND THE CONCLUSION OF THE
21 NEWSPAPER ASSOCIATION OF AMERICA IS THAT IN THE LOCAL ARENA
22 NEWSPAPERS SURPASS THE COMPETITION. IT SEEMED APPROPRIATE TO
23 ME
24 Q. OKAY. DOES THE LOCAL NATURE OF NEWSPAPERS -- DID THAT
25 HAVE ANY ROLE IN THE OPINION YOU FORMED? 414
COMANOR - DIRECT / SHULMAN
1 A. YES. THIS GUIDE SUGGESTS THAT NEWSPAPER READERS ARE
2 PRIMARILY CONCERNED WITH WHAT GOES ON IN THEIR LOCAL COMMUNITY.
3 AND NEWSPAPERS HAVE A WAY OF DEALING WITH LOCAL ISSUES
4 DIFFERENT THAN OTHER MEDIA.
5 Q. ALL RIGHT. NOW, DID YOU ALSO MAKE A -- REACH AN OPINION
6 CONCERNING THE QUESTION OF WHAT IS THE APPROPRIATE GEOGRAPHIC
7 MARKET?
8 A. YES, I DID.
9 Q. WHAT WERE THE CRITERIA THAT YOU APPLIED IN ANALYZING THE
10 QUESTION OF WHAT IS THE APPROPRIATE GEOGRAPHIC MARKET?
11 A. WELL, I USED THE SAME CRITERIA, BUT THE QUESTION HERE IS
12 WHAT ARE THE APPROPRIATE BOUNDARIES BY WHICH YOU SHOULD DEFINE
13 THE MARKET. IS A MARKET THE RELEVANT COUNTY OR A BROADER
14 METROPOLITAN AREA OR SOMETHING ELSE?
15 SO HERE WE ARE DEALING WITH WHAT IS THE GEOGRAPHIC
16 LIMITS OF A RELEVANT MARKET.
17 Q. AND WHAT ECONOMIC -- WHAT ECONOMIC CRITERIA DO YOU LOOK AT
18 TO SEE WHAT ARE THE -- WHAT ARE THE APPROPRIATE BOUNDARIES OF
19 THE GEOGRAPHIC MARKET?
20 A. ONE LOOKS AT VARIOUS FACTS THAT ONE CAN GATHER TO HELP YOU
21 GAIN A CONCLUSION -- TO HELP YOU DRAW A CONCLUSION -- REGARDING
22 CROSS-ELASTICITIES OF SUPPLY AND DEMAND ON THE ONE HAND OR THE
23 MERGER GUIDELINES TEST OF A PRICE INCREASE ON THE OTHER HAND TO
24 SEE WHAT FACTORS YOU CAN BRING TO BEAR TO LEAD YOU TO DRAW A
25 CONCLUSION FROM THESE CRITERIA. 415
COMANOR - DIRECT / SHULMAN
1 AND I -- MY COLLEAGUES AND I PRODUCED A NUMBER OF
2 CHARTS AND DATA WHICH IS QUITE RELEVANT FOR ALL OF THESE
3 MATTERS.
4 Q. OKAY. WE WILL GET TO THOSE IN A SECOND.
5 DID YOU -- AND DID YOU REACH AN OPINION AS TO THE
6 RELEVANT GEOGRAPHIC MARKET IN THIS CASE?
7 A. YES, I DID.
8 Q. WHAT IS YOUR OPINION AS TO THE RELEVANT GEOGRAPHIC MARKET?
9 A. THE RELEVANT MARKET IN GEOGRAPHIC TERMS IS THE CITY AND
10 COUNTY OF SAN FRANCISCO.
11 Q. NOW, I AM GOING TO GO THROUGH WITH YOU THE BASIS FOR THAT
12 OPINION. AND I THINK YOU MENTIONED THAT YOU HAD DONE A NUMBER
13 OF CHARTS.
14 (PAUSE IN THE PROCEEDINGS.)
15 MR. SHULMAN: YOUR HONOR, CAN WE TAKE JUST A SECOND
16 TO FIX THE TECH HERE SO THAT WE CAN SHOW THE EXHIBITS?
17 THE COURT: THAT WILL BE FINE. WHY DON'T WE TAKE,
18 WHAT, FIVE MINUTES?
19 MR. SHULMAN: THAT WOULD BE FINE.
20 THE COURT: WELL, LET'S MAKE IT TEN MINUTES. AND WE
21 WILL CORRECT SOME OTHER TECHNICAL PROBLEMS, AS WELL. TEN
22 MINUTES.
23 (RECESS TAKEN FROM 9:25 TO 9:40 A.M.)
24 THE COURT: VERY WELL, MR. SHULMAN. DO WE HAVE ALL
25 OF THE MECHANICS STRAIGHTENED OUT NOW? 416
COMANOR - DIRECT / SHULMAN
1 MR. SHULMAN: I BELIEVE SO, YOUR HONOR, AND I AM
2 STAYING AWAY FROM ALL BUTTONS ON THIS THING.
3 THE COURT: VERY WELL. YOU MAY PROCEED.
4 MR. SHULMAN: THANK YOU. MAY IT PLEASE THE COURT.
5 BY MR. SHULMAN:
6 Q. DR. COMANOR, YOU REMINDED ME WHILE WE WERE IN RECESS THAT
7 I HAD NOT -- OR YOU HAD NOT -- I HAD CUT YOU OFF BEFORE YOU HAD
8 MENTIONED ALL OF THE GROUNDS ON WHICH YOU DETERMINED THE
9 RELEVANT PRODUCT MARKET TO BE DAILY NEWSPAPERS.
10 SO I WOULD ASK YOU FOR THOSE -- TO STATE FOR THE
11 COURT, PLEASE, THOSE GROUNDS -- THOSE ADDITIONAL GROUNDS.
12 A. I ALSO REVIEWED THE ACADEMIC LITERATURE, AND I ENCOUNTERED
13 AN ARTICLE, WHICH IS REALLY RIGHT ON POINT, WHICH IS ENTITLED
14 "THE CROSS-ELASTICITY OF DEMAND FOR NATIONAL NEWSPAPER.
15 ADVERTISING." AND IT WAS AN EMPIRICAL STUDY. AND, IF IT'S
16 OKAY, I WOULD LIKE TO READ FOR YOU JUST THREE CONCLUSIONS WHICH
17 COME OUT OF THAT STATISTICAL ANALYSIS. AND THESE ARE QUOTES:
18 "FROM THESE DATA IT IS APPARENT THAT
19 CROSS-ELASTICITIES OF DEMAND BETWEEN NEWSPAPERS
20 AND OTHER NATIONAL MEDIA IS CONSISTENTLY NIL
21 ACROSS ALL MEDIA."
22 Q. WHAT DOES THAT MEAN?
23 A. IT MEANS THAT CROSS-ELASTICITIES OF DEMAND ARE ZERO, ARE
24 SUFFICIENTLY LOW, THAT ONE WOULD CONCLUDE THAT NEWSPAPERS
25 REPRESENT -- DAILY NEWSPAPERS REPRESENT A SEPARATE RELEVANT 417
COMANOR - DIRECT / SHULMAN
1 PRODUCT MARKET.
2 THE SECOND QUOTATION IS THAT NATIONAL ADVERTISERS
3 GENERALLY USE NEWSPAPERS FOR VERY DIFFERENT PURPOSES THAN OTHER
4 MEDIA.
5 AND THE THIRD QUOTATION IS:
6 "NEWSPAPERS NOT REALLY IN DIRECT COMPETITION
7 WITH OTHER MEDIA FOR NATIONAL ADVERTISING."
8 SO HERE WE HAVE AN ACADEMIC STUDY WHICH IS SURELY
9 CONSISTENT WITH ALL OF THE OTHER INFORMATION THAT I HAVE SEEN.
10 Q. WHAT WAS THE SECOND FINDING THAT YOU READ?
11 A. I WILL READ IT AGAIN, QUOTE:
12 "NATIONAL ADVERTISERS GENERALLY USE
13 NEWSPAPERS FOR VERY DIFFERENT PURPOSES THAN
14 OTHER MEDIA."
15 Q. AND WHAT DOES THAT SAY TO YOU AS AN ECONOMIST IN TERMS OF
16 WHETHER NEWSPAPERS ARE A RELEVANT PRODUCT MARKET?
17 A. IT SUGGESTS TO ME THAT IN TERMS OF ADVERTISING THAT
18 NEWSPAPERS ARE NOT -- DAILY NEWSPAPERS ARE NOT HIGHLY
19 SUBSTITUTABLE WITH OTHER MEDIA, OR OTHER MEDIA ARE NOT HIGHLY
20 SUBSTITUTABLE WITH DAILY NEWSPAPERS.
21 THAT INDICATES THAT THEY WOULD REPRESENT THAT THEY
22 WOULD LIE IN SEPARATE RELEVANT PRODUCT MARKETS.
23 Q. OKAY. HAVE YOU CONCLUDED THE LIST OF FACTORS THAT LED YOU
24 TO REACH THE OPINION THAT DAILY NEWSPAPERS ARE A RELEVANT
25 PRODUCT MARKET? 418
COMANOR - DIRECT / SHULMAN
1 A. YES, I HAVE.
2 Q. OKAY.
3 THE COURT: LET ME ASK ABOUT THAT ANALYSIS.
4 YOU SAID IT WAS AN ACADEMIC STUDY?
5 THE WITNESS: YES. I HAVE IT HERE.
6 THE COURT: CAN YOU TELL ME A LITTLE MORE ABOUT THE
7 STUDY?
8 THE WITNESS: YES.
9 THE COURT: WHO PERFORMED IT?
10 THE WITNESS: IT'S --
11 THE COURT: WHEN IT WAS PERFORMED?
12 THE WITNESS: IT WAS WRITTEN BY JOHN C. BUSTERNA.
13 THE COURT: JOHN C.?
14 THE WITNESS: B-U-S-T-E-R-N-A. AND IT WAS ENTITLED
15 "THE CROSS-ELASTICITY OF DEMAND FOR NATIONAL NEWSPAPER
16 ADVERTISING." HE IS A -- AN ASSISTANT PROFESSOR AT THE
17 UNIVERSITY OF MINNESOTA. AND THIS WAS PUBLISHED IN THE
18 JOURNALISM QUARTERLY FOR SEPTEMBER -- SUMMER/AUTUMN 1987. AND
19 I HAVE IT HERE (INDICATING).
20 THE COURT: ALL RIGHT. I ASSUME THAT'S GOING TO BE
21 MADE A PART OF THE WITNESS' TESTIMONY?
22 MR. SHULMAN: YES. WE COULD OFFER THAT, YOUR HONOR.
23 THE COURT: DID YOU SAY "'87"?
24 THE WITNESS: YES, I DID.
25 MR. SHULMAN: IT WOULD NEED TO BE MARKED, YOUR 419
COMANOR - DIRECT / SHULMAN
1 HONOR.
2 MR. ROSCH: YOUR HONOR, WE HAVE MARKED IT AS AN
3 EXHIBIT. WE WILL BE OFFERING IT IN DUE COURSE.
4 THE COURT: VERY WELL.
5 MR. SHULMAN: WHICH -- WHAT NUMBER?
6 (PAUSE IN THE PROCEEDINGS.)
7 MR. HUSTON: C-354.
8 MR. SHULMAN: WE WOULD LIKE TO BY STIPULATION ADMIT
9 THIS INTO EVIDENCE, THEN.
10 THE COURT: C-354. VERY WELL. ADMITTED BY
11 STIPULATION.
12 (DEFENDANT'S EXHIBIT C-354
13 RECEIVED IN EVIDENCE)
14 MR. SHULMAN: YOUR HONOR, THE RECORD SHOULD ALSO
15 REFLECT THAT WE HAVE NOW STIPULATED THAT PLAINTIFF EXHIBITS 143
16 THROUGH 147 MAY BE ADMITTED.
17 THE COURT: BY STIPULATION?
18 MR. ROSCH: THAT'S CORRECT, YOUR HONOR.
19 THE COURT: VERY WELL.
20 (PLAINTIFF'S EXHIBITS 143 THROUGH 147
21 RECEIVED IN EVIDENCE)
22 MR. SHULMAN: MAY I APPROACH THE WITNESS?
23 THE COURT: YES, YOU MAY.
24 ////
25 BY MR. SHULMAN: 420
COMANOR - DIRECT / SHULMAN
1 Q. DR. COMANOR, I HAVE HANDED YOU WHAT IS IN EVIDENCE AS
2 PLAINTIFF'S EXHIBIT 143. AND THIS IS A CHART ENTITLED
3 "NEWSPAPER CIRCULATION IN SAN FRANCISCO COUNTY."
4 CAN YOU EXPLAIN TO US WHAT THIS IS AND YOUR ROLE IN
5 CONNECTION WITH ITS PREPARATION?
6 A. YES. THIS CHART WAS PREPARED BY ONE OF MY ASSOCIATES AND
7 USED AVAILABLE DATA. AND IT SAYS AT THE BOTTOM WHERE IT COMES
8 FROM, "DATA ON NEWSPAPER CIRCULATION IN SAN FRANCISCO COUNTY."
9 AND WHAT IT EMPHASIZES IS THAT THE CHRONICLE AND
10 EXAMINER TOGETHER REPRESENT MORE THAN 97 PERCENT OF NEWSPAPER
11 CIRCULATION IN SAN FRANCISCO COUNTY, THAT THE OTHER NEWSPAPERS
12 IN AGGREGATE REPRESENT LESS THAN THREE PERCENT.
13 SO HERE WE HAVE A SITUATION WHERE THESE TWO
14 NEWSPAPERS LINKED TOGETHER HAVE NEARLY THE ENTIRE MARKET.
15 Q. IF WE COULD -- IF WE COULD GO DOWN TO THE BOTTOM OF THE
16 PAGE, THERE IS A NOTE THERE ON THE SOURCE AT THE BOTTOM LEFT.
17 STILL DOWN FARTHER.
18 A. YES, I SEE IT.
19 Q. RIGHT AT THE -- FARTHER DOWN. THE VERY BOTTOM.
20 HERE WE HAVE IT. BRING IT IN.
21 ALL RIGHT. AND THAT -- IT'S A LITTLE HARD TO READ.
22 THAT SAYS:
23 "SOURCE BASED ON 1998 DAILY CIRCULATION DATA
24 REPORTED BY SAN FRANCISCO NEWSPAPER AGENCY
25 MARKET RESEARCH DEPARTMENT." 421
COMANOR - DIRECT / SHULMAN
1 DO YOU SEE THAT?
2 A. YES, I DO.
3 Q. AND IS THAT WHERE THE DATA CAME FROM THAT YOU USED TO
4 COMPILE THE CHART?
5 A. THAT'S MY UNDERSTANDING WHERE MY ASSOCIATE OBTAINED THE
6 DATA.
7 Q. OKAY. NOW, LET'S GO BACK TO THE LINE THAT SHOWS -- TO THE
8 UPPER PART WHICH SHOWS LOCAL MARKET SHARE.
9 AND I NOTICED YOU HAVE A FINDING HERE THAT SAYS:
10 "97 PERCENT OF TOTAL NEWSPAPER CIRCULATION
11 IN SAN FRANCISCO COUNTY IS ACCOUNTED FOR BY THE
12 SAN FRANCISCO CHRONICLE AND EXAMINER."
13 A. YES, SIR.
14 Q. OKAY. WHAT -- AS AN ECONOMIST, WHAT IS THE SIGNIFICANCE
15 TO YOU OF THIS DATA AND THAT FINDING?
16 A. SUPPOSE I WAS AN ADVERTISER IN SAN FRANCISCO AND I WANTED
17 TO REACH CUSTOMERS IN SAN FRANCISCO THROUGH NEWSPAPERS.
18 CLEARLY, I'D HAVE TO USE EITHER THE CHRONICLE OR THE EXAMINER
19 BECAUSE IF I USED ANY OTHER NEWSPAPER, ALMOST NOBODY WOULD SEE
20 MY AD. SO THAT SUGGESTS TO ME THAT THE CROSS-ELASTICITY OF
21 DEMAND BY ADVERTISERS BETWEEN THE CHRONICLE/EXAMINER ON THE ONE
22 HAND AND ANY OF THESE OTHER NEWSPAPERS IS VERY LOW, EFFECTIVELY
23 ZERO. THE PRICE COULD RISE FOR ADVERTISING IN THE
24 CHRONICLE/EXAMINER AND I WOULD NOT SWITCH BECAUSE NONE OF THESE
25 OTHER NEWSPAPERS ACTUALLY REACH SAN FRANCISCO READERS. SO THIS 422
COMANOR - DIRECT / SHULMAN
1 PIECE OF INFORMATION IS INDICATIVE OF VERY LOW
2 CROSS-ELASTICITIES OF DEMAND.
3 Q. AND DOES THAT TELL YOU THAT THE CITY AND COUNTY OF SAN
4 FRANCISCO IS A RELEVANT GEOGRAPHIC MARKET FOR DAILY NEWSPAPERS?
5 A. YES, IT DOES. IT'S CERTAINLY ONE INSTANCE OF THAT RESULT.
6 MR. ROSCH: ALL RIGHT. LET ME TURN NEXT TO
7 EXHIBIT 144 IN EVIDENCE, IF I MAY APPROACH THE WITNESS, YOUR
8 HONOR?
9 THE COURT: YOU MAY.
10 (PAUSE IN THE PROCEEDINGS.)
11 BY MR. SHULMAN:
12 Q. ALL RIGHT. EXHIBIT 144 IS ENTITLED "NATIONAL AND LOCAL
13 ADVERTISING RATES BY COUNTY."
14 CAN YOU EXPLAIN TO US WHAT THIS CHART IS, WHAT IT
15 SHOWS?
16 A. YES.
17 I SHOULD SAY THAT I HAVE TWO CHARTS WITH THE SAME
18 TITLE, AND I NEED TO DEAL WITH THEM IN CONJUNCTION WITH ONE
19 ANOTHER.
20 Q. OKAY. THE SECOND ONE, I BELIEVE, IS EXHIBIT 147 IN
21 EVIDENCE.
22 MAY I APPROACH THE WITNESS, YOUR HONOR?
23 THE COURT: YES.
24 ARE THESE THE SAME?
25 THE WITNESS: NO. THERE ARE A COUPLE OF NUMBERS 423
COMANOR - DIRECT / SHULMAN
1 WHICH ARE DIFFERENT AND I WILL GO THROUGH THE DIFFERENCES.
2 THE COURT: ALL RIGHT.
3 THE WITNESS: IF THAT'S OKAY.
4 THE COURT: BY ALL MEANS.
5 BY MR. SHULMAN:
6 Q. ALL RIGHT. WOULD YOU DO THAT, PLEASE?
7 A. THE FIRST CHART USES THE RATE -- THE ADVERTISING RATES PER
8 THOUSAND CIRCULATION FOR ALL -- FOR THE INDICATED NEWSPAPERS
9 AND THE INDICATED COUNTIES.
10 BUT THE CHRONICLE/EXAMINER RATES REFER TO THE RATES
11 APPLICABLE FOR ALL OF ITS EDITIONS, WHILE THE SECOND CHART IS
12 THE SAME EXCEPT THAT THE CHRONICLE/EXAMINER RATES FOR RETAIL
13 ADVERTISING ONLY REFER TO THE RATES FOR THE PARTICULAR EDITION.
14 THIS NEWSPAPER HAS DIFFERENT RATES FOR DIFFERENT
15 EDITIONS. THEY HAVE DIFFERENT RATE CARDS FOR DIFFERENT
16 EDITIONS.
17 Q. WHEN YOU SAY "DIFFERENT EDITIONS," WHAT DO YOU -- WHAT DO
18 YOU MEAN BY A "DIFFERENT EDITION"?
19 A. THEY HAVE A RATE CARD FOR THE CITY OF SAN FRANCISCO; THEY
20 HAVE A RATE CARD FOR THE SOUTH BAY; THEY HAVE A RATE CARD FOR
21 THE EAST BAY; THEY HAVE A RATE CARD FOR CONTRA COSTA COUNTY.
22 AND THEY ARE PUT IN TERMS OF ZONES SO THAT YOU CAN -- YOU CAN
23 HAVE AN AD JUST IN THE RELEVANT EDITION.
24 AND IN THE SECOND TABLE FOR RETAIL ADS WE TOOK THOSE
25 SEPARATE RATES INTO ACCOUNT BUT NOT IN THE FIRST TABLE. 424
COMANOR - DIRECT / SHULMAN
1 Q. OKAY. LET ME ASK YOU --
2 THE COURT: YOU BETTER GO OVER THAT AGAIN.
3 MR. SHULMAN: I WILL.
4 BY MR. SHULMAN:
5 Q. IN THE -- THE FIRST -- THE FIRST TABLE YOU USED JUST ONE
6 ADVERTISING RATE FOR THE EXAMINER AND THE CHRONICLE?
7 A. YES. WELL, WE ALWAYS DID THAT FOR NATIONAL ADS.
8 Q. OKAY.
9 A. BECAUSE THEY ONLY HAVE ONE RATE.
10 BUT FOR LOCAL RETAIL ADS, THEY HAVE A RATE FOR ALL
11 OF THE EDITIONS, AND THEN THEY HAVE A SEPARATE RATE FOR
12 INDIVIDUAL EDITIONS, ZONE RATES, IF YOU WILL.
13 Q. OKAY. SO THEY HAVE A BLANKET RATE IF AN ADVERTISER WANTS
14 TO USE -- WANTS TO BE IN ALL EDITIONS?
15 A. THAT IS CORRECT.
16 THE COURT: WOULD THAT BE ALL ZONES?
17 THE WITNESS: YES. THAT'S MY UNDERSTANDING.
18 THE COURT: ALL RIGHT. SO THIS IS -- 144 IS THE
19 RETAIL RATE FOR ALL ZONES?
20 THE WITNESS: THAT'S CORRECT.
21 THE COURT: AND IS THAT TRUE OF ALL OF THE
22 PUBLICATIONS OR ONLY THE CHRONICLE/EXAMINER?
23 THE WITNESS: THAT'S TRUE OF ALL OF THEM. I DON'T
24 KNOW THAT THE OTHER ONES HAVE DIFFERENT ZONES.
25 THE COURT: I SEE. 425
COMANOR - DIRECT / SHULMAN
1 THE WITNESS: BUT IN THE SECOND TABLE ALL THE DATA
2 IS THE SAME EXCEPT FOR THE CHRONICLE/EXAMINER RETAIL RATES BY
3 ZONE.
4 AND IF YOU LOOK THROUGH IT, YOU WILL SEE THOSE ARE
5 THE ONLY NUMBERS WHICH ARE DIFFERENT. FOR EXAMPLE, THE $1.58
6 NUMBER FOR SAN FRANCISCO, THE CHRONICLE/EXAMINER IN SAN
7 FRANCISCO, IS DIFFERENT THAN THE 54 CENT NUMBER IN THE SECOND
8 COLUMN, IN THE SECOND TABLE. OKAY?
9 SIMILARLY, IN ALAMEDA COUNTY $2.66 IS DIFFERENT THAN
10 46 CENTS. AND THAT'S WHERE THE DIFFERENCES COME FROM.
11 THE COURT: DO THE DESIGNATIONS IN THE -- THAT ARE
12 ON THE VARIOUS COLUMNS REPRESENT EACH ZONE?
13 THE WITNESS: YES.
14 THE COURT: SAN FRANCISCO --
15 THE WITNESS: THE ZONES ARE COUNTY SPECIFIC.
16 THE COURT: THEY ARE COUNTY SPECIFIC?
17 THE WITNESS: YES.
18 THE COURT: AND THAT'S TRUE OF ALL OF THESE FOUR
19 NEWSPAPERS?
20 THE WITNESS: NO. WE ONLY -- WE ONLY DID THAT FOR
21 THE CHRONICLE/EXAMINER.
22 BY MR. SHULMAN:
23 Q. WHY DID YOU DO IT TWO WAYS, THE FIRST TIME USING THE
24 OVERALL RATE OF THE CHRONICLE/EXAMINER AND THE SECOND TIME
25 USING THE SPECIFIC ZONE RATES? 426
COMANOR - DIRECT / SHULMAN
1 A. WELL, TO BE HONEST, I ASKED MY ASSOCIATE IF THEY HAD -- IF
2 THE CHRONICLE/EXAMINER HAD DIFFERENT ZONAL RATES. AND
3 ORIGINALLY HE SAID "NO" AND SO HE DID IT THE FIRST WAY.
4 AND THEN AFTER I PREPARED THAT CHART, HE SAID,
5 "WELL, I DUG A LITTLE DEEPER AND THEY DID HAVE DIFFERENT RATES
6 FOR DIFFERENT EDITIONS."
7 AND SO THEN WE DID A SECOND GRAPH OF -- WE DID IT
8 BECAUSE WHEN I PREPARED THE FIRST CHART, I DIDN'T KNOW THEY HAD
9 ZONAL RATES.
10 Q. NOW, IS IT AT ALL SIGNIFICANT TO YOU AS AN ECONOMIST THAT
11 THE CHRONICLE AND EXAMINER HAVE SEPARATE ZONE RATES, THEY HAVE
12 SEPARATE RATES FOR SEPARATE EDITIONS PUBLISHED IN SEPARATE
13 LOCALITIES?
14 A. YES.
15 Q. WHY IS THAT -- WOULD YOU EXPLAIN THE SIGNIFICANCE OF THAT?
16 A. AN IMPORTANT ATTRIBUTE OF AN ECONOMIC MARKET IS THE
17 FACT -- IS THE RULE OF ONE PRICE, THAT THE SINGLE PRICE EXISTS
18 THROUGHOUT THE MARKETPLACE.
19 AND IF A FIRM IS SELLING THE SAME PRODUCT AT -- IN
20 DIFFERENT LOCATIONS AT DIFFERENT PRICES, THAT IS AN IMPORTANT
21 INDICATION THAT THE FIRM IS SELLING INTO DIFFERENT GEOGRAPHIC
22 MARKETS BECAUSE IF IT WERE THE SAME MARKET, THEN WHY WOULD
23 ANYONE BUY AT THE HIGHER PRICE WHEN THEY COULD BUY AT THE LOWER
24 PRICE? THEY WOULD GO AND BUY AT THE LOWER PRICE.
25 AND SO THE TWO PRICES COULD NOT PERSIST. THE FACT 427
COMANOR - DIRECT / SHULMAN
1 THAT TWO PRICES PERSIST IS AN IMPORTANT ECONOMIC INDICATION
2 THAT THERE ARE SEPARATE RELEVANT GEOGRAPHIC MARKETS.
3 THE IMPORTANT THING ABOUT THESE TABLES --
4 BY MR. SHULMAN:
5 Q. WELL, WHY DON'T YOU EXPLAIN NOW WHAT -- WHAT
6 CONCLUSIONS -- WHAT THESE TABLES SHOW AND THE CONCLUSIONS THAT
7 OUGHT TO BE DRAWN FROM THEM.
8 A. I THINK IT'S IMPORTANT TO LOOK AT THE RATES WITHIN EACH
9 COUNTY AND SEE WHETHER OR NOT THERE IS REAL COMPETITION AMONG
10 THE DIFFERENT NEWSPAPERS IN EACH INDIVIDUAL COUNTY.
11 LET'S TAKE SAN FRANCISCO AND LET'S TAKE NATIONAL ADS
12 WHERE THERE IS NO -- NO ZONAL RATES, TO MY UNDERSTANDING. YOU
13 CAN SEE THAT THE PRICE PER THOUSAND IN SAN FRANCISCO OF THE
14 CHRONICLE/EXAMINER IS $2.71. AND THIS IS PER COLUMN INCH PER
15 THOUSAND CIRCULATION. THE PRICES -- THE COMPARABLE PRICES FOR
16 THE OTHER THREE NEWSPAPERS WE HAVE HERE ARE VASTLY HIGHER,
17 ORDERS OF MAGNITUDE HIGHER -- $226, $82, $607. THEY ARE
18 CLEARLY NOT COMPETITIVE. THERE IS NO WAY THAT ONE WOULD PAY
19 VASTLY HIGHER RATES FOR THE SAME AS WHEN THEY COULD GET THE
20 PRODUCT FOR $27.71 PER THOUSAND CIRCULATION.
21 THAT TELLS ME THAT THE CHRONICLE/EXAMINER DOES NOT
22 FACE EFFECTIVE COMPETITION FROM THESE OTHER NEWSPAPERS FOR
23 NATIONAL ADS IN THE CITY AND COUNTY OF SAN FRANCISCO.
24 IF YOU DO THE SAME ANALYSIS FOR RETAIL ADS, WHETHER
25 YOU DO IT ON AN OVERALL BASIS, AS IN THE FIRST CHART, OR ON A 428
COMANOR - DIRECT / SHULMAN
1 ZONAL BASIS IN THE SECOND CHART, YOUR CONCLUSIONS ARE THE
2 SAME -- 54 CENTS PER THOUSAND IS A DIFFERENT ORDER OF MAGNITUDE
3 THAN THE PRICES CHARGED PER THOUSAND IN -- BY THE OAKLAND
4 TRIBUNE, THE SAN JOSE MERCURY OR THE CONTRA COSTA TIMES.
5 THERE IS NO WAY THAT AT THESE PRICES -- RELATIVE
6 PRICES THAT THE OTHER THREE NEWSPAPERS REPRESENT EFFECTIVE
7 COMPETITION IN THE MARKET FOR RETAIL ADVERTISING, WHICH IS A
8 CRITICALLY IMPORTANT MARKET, IN COMPETITION TO THE SAN
9 FRANCISCO CHRONICLE/EXAMINER. THE CHRONICLE/EXAMINER
10 REPRESENTS A SEPARATE RELEVANT MARKET IN ITSELF. THESE --
11 THESE PAPERS DO NOT PROVIDE EFFECTIVE COMPETITION.
12 NOW, LET'S TURN TO ALAMEDA COUNTY. AND, AS YOU CAN
13 SEE, THAT'S THE HOME TERRITORY, OF COURSE, OF THE OAKLAND
14 TRIBUNE, AND THAT -- THE NATIONAL RATES ARE LOWEST FOR THE
15 OAKLAND TRIBUNE AS COMPARED WITH ANY OF THE OTHER THREE
16 NEWSPAPERS, ALTHOUGH $3.24 IS NOT WILDLY DIFFERENT THAN $4.54.
17 SO THERE IS SOME FORM OF COMPETITION THAT THE
18 CHRONICLE/EXAMINER IMPOSES ON THE TRIBUNE IN ALAMEDA COUNTY.
19 SO THERE IS A DIFFERENT FOCUS OF COMPETITION IN ALAMEDA THAN
20 THERE IS IN SAN FRANCISCO.
21 NOW, IF YOU TURN TO RETAIL ADS, YOU FIND SOMETHING
22 COMPARABLE AND CERTAINLY IF YOU -- IF YOU DO IT ON A ZONAL
23 RATE, YOU FIND SOMETHING RATHER INTERESTING, THAT THE SAN
24 FRANCISCO CHRONICLE/EXAMINER HAS LOWER RETAIL RATES EVEN IN A
25 SECOND COUNTY THAN THE OAKLAND TRIBUNE. AND THAT'S -- THAT 429
COMANOR - DIRECT / SHULMAN
1 TELLS ME THAT THE CHRONICLE/EXAMINER IS SURELY AN EFFECTIVE
2 COMPETITOR IN ALAMEDA COUNTY, BUT THE FACT THAT THE
3 CHRONICLE/EXAMINER IS AN EFFECTIVE COMPETITOR IN ALAMEDA COUNTY
4 DOES NOT INDICATE THAT THE TRIBUNE IS NECESSARILY AN EFFECTIVE
5 COMPETITOR IN SAN FRANCISCO COUNTY. THOSE ARE DIFFERENT
6 THINGS. SO THAT THE CHRONICLE CAN COMPETE IN ALAMEDA COUNTY
7 DOES NOT IMPLY THAT THE OAKLAND TRIBUNE COMPETES IN SAN
8 FRANCISCO COUNTY.
9 AND THEN I CARRIED OUT THE SAME ANALYSIS FOR SANTA
10 CLARA AND CONTRA COSTA, AND WE CAN GO THROUGH THE SAME ANALYSIS
11 AND YOU CAN SEE THE HOME NEWSPAPER IS LARGELY HIGHLY
12 COMPETITIVE, BUT THE CHRONICLE/EXAMINER DOES PROVIDE EFFECTIVE
13 COMPETITION IN -- IN SOME OF THESE OTHER COUNTY.
14 INDEED, IN CONTRA COSTA COUNTY FOR RETAIL ADS USING
15 A ZONAL RATE, YOU CAN SEE THE PRICE PER COLUMN INCH PER
16 THOUSAND CIRCULATION IS 44 CENTS BY THE CHRONICLE/EXAMINER
17 WHILE IT IS 83 CENTS FOR THE CONTRA COSTA TIMES.
18 SO THAT THE -- THE CHRONICLE/EXAMINER IS CLEARLY AN
19 EFFECTIVE COMPETITOR IN CONTRA COSTA COUNTY. THE OTHER TWO
20 PAPERS, THE SAN JOSE MERCURY AND THE OAKLAND TRIBUNE, DO NOT
21 APPEAR TO BE.
22 GENERALLY, THE MOST EFFECTIVE COMPETITOR IS THE FIRM
23 IN ITS OWN COUNTY. BUT THAT'S NOT ALWAYS THE CASE.
24 IT'S IMPORTANT TO EMPHASIZE THAT NEWSPAPERS HAVE A
25 LARGELY LOCAL COMPONENT. THE MOST IMPORTANT FEATURE ABOUT A 430
COMANOR - DIRECT / SHULMAN
1 NEWSPAPER IS ITS LOCATION. AND THAT FACTOR PERVADES THE
2 MARKETPLACE. THE SAN FRANCISCO CHRONICLE/EXAMINER IS CLEARLY
3 FROM THIS INFORMATION THE DOMINANT COMPETITOR IN THE COUNTY OF
4 SAN FRANCISCO.
5 Q. WE HAD SOME TESTIMONY IN THIS TRIAL YESTERDAY FROM
6 MR. SIAS ABOUT NEWSSTAND PRICES, SINGLE COPY PRICES, THAT --
7 WHERE HE SAID THAT IN THE CITY OF SAN FRANCISCO THE CHRONICLE
8 HAD A SINGLE COPY PRICE OF 50 CENTS AND IN SAN JOSE IT WAS 25
9 CENTS. IN THE EAST BAY IT WAS 25 CENTS.
10 DOES THAT TELL YOU ANYTHING ABOUT RELEVANT
11 GEOGRAPHIC MARKET?
12 A. IF CONSUMERS WENT BACK AND FORTH BETWEEN THESE COUNTIES
13 SUFFICIENTLY FREQUENTLY SO THAT YOU COULD REALLY VIEW THEM AS
14 THE SAME RELEVANT GEOGRAPHIC MARKET, THEN WHY WOULD ANYONE
15 SPEND 50 CENTS WHEN THEY CAN GET THE SAME PAPER FOR 25 CENTS?
16 THEY WOULDN'T.
17 AND, THEREFORE, THAT TYPE OF PRICE DIFFERENTIAL
18 COULD NOT PERSIST. THAT PRICE DIFFERENTIAL INDICATES TO ME
19 THAT THERE ARE SEPARATE GEOGRAPHIC MARKETS FOR THE CIRCULATION
20 SEGMENT OF THIS BUSINESS BETWEEN THESE DIFFERENT LOCATIONS.
21 OTHERWISE, YOU WOULDN'T SEE PRICE DIFFERENCES LIKE THIS.
22 Q. LET ME TURN NEXT TO EXHIBIT 145 IN EVIDENCE, ANOTHER CHART
23 THAT YOU PREPARED.
24 MAY I APPROACH THE WITNESS, YOUR HONOR?
25 THE COURT: YOU MAY. 431
COMANOR - DIRECT / SHULMAN
1 BY MR. SHULMAN:
2 Q. DR. COMANOR, CAN YOU IDENTIFY FOR US EXHIBIT 145 AND
3 EXPLAIN WHAT THIS IS?
4 A. THE THIRD LEADING SEGMENT OF NEWSPAPER ADVERTISING IS
5 CLASSIFIED ADVERTISING. SO WE LOOKED ALSO AT THIS -- AT RATES
6 FOR THESE TYPES OF ADS. AND WE CARRIED OUT PRETTY MUCH A
7 SIMILAR ANALYSIS FOR CLASSIFIED ADS THAT WE HAD CARRIED OUT FOR
8 NATIONAL AND LOCAL ADS PREVIOUSLY. AND HERE WE HAVE THE SAME
9 FOUR NEWSPAPERS AND THE SAME FOUR COUNTIES AND THE RELEVANT
10 PRICE IS THE RATE PER LINE PER THOUSAND CIRCULATION.
11 AND YOU CAN SEE THAT -- AND WE DIVIDED BY AUTO ADS
12 AND REAL ESTATE ADS. AND YOU CAN SEE THAT IN THE CITY AND
13 COUNTY OF SAN FRANCISCO THE CLASSIFIED ADVERTISING RATE IS
14 VASTLY LOWER FOR BOTH AUTOS AND REAL ESTATE THAN THE COMPARABLE
15 RATES FOR THE OAKLAND TRIBUNE, THE SAN JOSE MERCURY AND THE
16 CONTRA COSTA TIMES.
17 FOR REAL ESTATE IT'S 11.06 CENTS. THE COMPARABLE
18 RATES FOR THE TRIBUNE, MERCURY AND CONTRA COSTA TIMES ARE $13,
19 $5 AND $68. THOSE SORTS OF PRICE DIFFERENCES INDICATE TO ME
20 THAT THE CHRONICLE/EXAMINER COMPETES IN A SEPARATE GEOGRAPHIC
21 MARKET FROM THESE OTHER NEWSPAPERS.
22 AFTER ALL, THE PURPOSE OF DEFINING MARKET IS TO SEE
23 WHETHER OR NOT OTHER SELLERS IMPOSE EFFECTIVE COMPETITION ON
24 THE SELLER AT ISSUE. WITH THESE RATES, DIFFERENCES, CLEARLY
25 FOR CLASSIFIED ADS THESE OTHER NEWSPAPERS DO NOT IMPOSE 432
COMANOR - DIRECT / SHULMAN
1 EFFECTIVE COMPETITION ON THE CHRONICLE/EXAMINER. AND,
2 THEREFORE, ONE CAN DRAW TO THE CONCLUSION OF SEPARATE
3 GEOGRAPHIC MARKETS.
4 TURNING TO ALAMEDA, HOWEVER, YOU CAN SEE THAT THERE
5 IS MUCH MORE COMPETITION BETWEEN THE CHRONICLE/EXAMINER ON THE
6 ONE HAND AND THE OAKLAND TRIBUNE ON THE OTHER IN ALAMEDA
7 COUNTY. FOR REAL ESTATE ONE PRICE IS 19.4 CENTS; THE OTHER IS
8 19.0 CENTS. AND SO, THEREFORE, I VIEW THOSE TWO NEWSPAPERS AS
9 EFFECTIVE COMPETITORS, BOTH CO-EXISTING IN THE SAME RELEVANT
10 GEOGRAPHIC MARKET, THE ALAMEDA RELEVANT MARKET.
11 AND YOU CAN SEE ALSO THAT THE MERCURY AND THE CONTRA
12 COSTA TIMES ARE NOT EFFECTIVE COMPETITORS IN ALAMEDA COUNTY.
13 IN SANTA CLARA COUNTY THE SANTA CLARA -- THE SAN
14 JOSE MERCURY IS -- IS CLEARLY A DOMINANT AND THE OTHER
15 NEWSPAPERS DO NOT REALLY POSE EFFECTIVE COMPETITION. THE
16 CHRONICLE/EXAMINER, OAKLAND TRIBUNE AND CONTRA COSTA TIMES HAVE
17 MUCH HIGHER RATES.
18 IN CONTRA COSTA COUNTY YOU CAN SEE THAT THE CONTRA
19 COSTA TIMES HAS THE -- WELL, IT DOESN'T ALWAYS HAVE THE LOWEST
20 RATE ON AUTOS. AS YOU CAN SEE, THE RATE BY THE
21 CHRONICLE/EXAMINER AND THE OAKLAND TRIBUNE ARE EVEN LOWER FOR
22 AUTO CLASSIFIED ADS THAN THE RATE FOR THE CONTRA COSTA TIMES.
23 IN OUTLYING COUNTIES THERE APPEARS TO BE MUCH MORE
24 COMPETITION THAN THERE IS IN THE HOME COUNTY OF THE DOMINANT
25 NEWSPAPER. THE COMPETITIVE FACTORS SEEM TO BE VERY DIFFERENT 433
COMANOR - DIRECT / SHULMAN
1 ACROSS THE DIFFERENT COUNTIES THAT WE HAVE LOOKED HERE, LOOKED
2 AT, SUGGESTING TO ME THAT THE RELEVANT GEOGRAPHIC MARKET IS THE
3 PARTICULAR COUNTY. AND THAT'S THE CONCLUSION I DREW.
4 Q. OKAY. LET ME SHOW YOU THE LAST CHART.
5 MAY I APPROACH THE WITNESS, YOUR HONOR?
6 THE COURT: YES, YOU MAY.
7 BY MR. SHULMAN:
8 Q. THIS IS EXHIBIT 146 IN EVIDENCE, AND IT IS A CHART
9 ENTITLED "ADVERTISEMENTS PLACED BY SAN FRANCISCO SELLERS IN THE
10 CHRONICLE, EXAMINER AND ADJACENT COUNTY NEWSPAPERS."
11 CAN YOU EXPLAIN WHAT THIS IS?
12 A. YES. WE LOOKED AT THE NEWSPAPERS FOR APRIL 17 AND WE
13 CARRIED OUT AN ANALYSIS WHICH IS PRETTY SIMILAR TO THE ONE WE
14 TALKED ABOUT BEFORE.
15 THE QUESTION IS WOULD A SAN FRANCISCO SELLER, EITHER
16 RETAIL OR CLASSIFIED AUTOS, AUTO AND CLASSIFIED ADS, ADVERTISE
17 ANYPLACE ELSE BETWEEN THE CHRONICLE AND THE EXAMINER. AND WE
18 CARRY THE -- WE SIMPLY COUNTED UP THE ADS, TOTAL AD SPACE,
19 TOTAL NUMBER OF ADS, IN THESE RELEVANT NEWSPAPERS.
20 AND, AS YOU CAN SEE, VERY FEW ADS BY SAN FRANCISCO
21 SELLERS ARE PLACED ANYWHERE BUT THE CHRONICLE AND EXAMINER -- A
22 FEW IN THE TRIBUNE, ONE IN THE MERCURY, A FEW IN THE CONTRA
23 COSTA TIMES. BUT THEY ARE OVERWHELMINGLY IN THE
24 CHRONICLE/EXAMINER. THESE RESULTS ARE AGAIN CONSISTENT WITH
25 THE FACT THAT CROSS-ELASTICITIES OF DEMAND BY SAN FRANCISCO 434
COMANOR - DIRECT / SHULMAN
1 ADVERTISERS -- BY SAN FRANCISCO SELLERS WHO WISH TO PLACE
2 ADVERTISING -- IS VERY LOW BETWEEN THE CHRONICLE AND EXAMINER
3 ON THE ONE HAND AND THESE OTHER NEWSPAPERS ON THE OTHER.
4 AGAIN, THIS LEADS ME TO THE CONCLUSION THAT SAN
5 FRANCISCO IS A SEPARATE RELEVANT GEOGRAPHIC MARKET.
6 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25 435
COMANOR - DIRECT / SHULMAN
1 Q. I WANT TO DIRECT YOUR ATTENTION TO SOME TESTIMONY THAT WAS
2 GIVEN BY MR. TED FANG TO THE UNITED STATES DEPARTMENT OF
3 JUSTICE ON NOVEMBER 8, 1999. AND THIS APPEARS AT PAGE 112,
4 LINE 19, OF MR. FANG'S TESTIMONY.
5 MR. HOCKETT: CAN YOU GIVE US A MINUTE TO LOCATE
6 THAT, PLEASE?
7 MR. SHULMAN: SURE.
8 (PAUSE IN PROCEEDINGS.)
9 BY MR. SHULMAN:
10 Q. IN THAT TESTIMONY BEGINNING AT LINE 19 -- ONE -- AT LINE
11 19 ON PAGE 112, MR. FANG WAS ASKED --
12 THE COURT: DO YOU HAVE A COPY FOR THE COURT OR IS
13 IT ONE OF THESE THAT WE DON'T HAVE AN EXTRA COPY OF?
14 MR. SHULMAN: I'M USING THE ONLY COPY WE HAVE.
15 MR. CONNELL: HERE YOU GO.
16 (PAUSE IN PROCEEDINGS.)
17 THE COURT: THANK YOU, MR. SHULMAN.
18 BY MR. SHULMAN:
19 Q. DR. COMANOR, BEGINNING AT PAGE 112, LINE 19, MR. FANG WAS
20 ASKED THIS QUESTION, THIS SERIES OF QUESTIONS. I'M GOING
21 THROUGH TO LINE 5 ON PAGE 113. HE GAVE THESE ANSWERS:
22 "Q. IF THE PRICE AT THE NEWSSTAND OF THE
23 EXAMINER AND CHRONICLE WERE TO GO UP BY
24 10 PERCENT, WOULD THAT CAUSE A SIGNIFICANT
25 NUMBER OF PEOPLE IN SAN FRANCISCO TO START 436
COMANOR - DIRECT / SHULMAN
1 READING THE OAKLAND TRIBUNE?
2 "A. I DON'T THINK THAT PEOPLE WOULD READ
3 THE OAKLAND TRIBUNE IF THE CHRONICLE/EXAMINER
4 EVEN DOUBLED THEIR PRICE JUST BECAUSE IT'S TWO
5 DIFFERENT NEWSPAPERS, TWO DIFFERENT CITIES.
6 "Q. WOULD YOUR ANSWER BE THE SAME FOR THE
7 SAN JOSE MERCURY NEWS?
8 "A. YES, IT WOULD."
9 OKAY. ARE YOU FAMILIAR WITH THAT TESTIMONY?
10 A. YES, I AM.
11 Q. DOES THAT -- TELL ME WHETHER THAT -- WHAT CONCLUSIONS OR
12 OPINIONS YOU DRAW FROM THAT TESTIMONY.
13 A. THE QUESTIONS, WHICH I GATHER WERE PROPOSED BY THE
14 DEPARTMENT OF JUSTICE ATTORNEYS, ESSENTIALLY RAISE THE
15 CRITERIA, USE THE -- EMPLOY THE CRITERIA IMPOSED IN THE MERGER
16 GUIDELINES THAT I MENTIONED BEFORE, IF THE PRICE INCREASED BY
17 10 PERCENT, WOULD THERE BE A SUFFICIENT SWITCHING IN DEMAND.
18 THAT'S THE TEST WHICH THE JUSTICE DEPARTMENT USES.
19 AND THE ANSWER IS, NO, CONSUMERS WOULD NOT SWITCH.
20 THIS TESTIMONY IS CONSISTENT WITH THE CONCLUSION THAT SAN
21 FRANCISCO COUNTY REPRESENTS A SEPARATE GEOGRAPHIC MARKET
22 BECAUSE PEOPLE WOULD NOT SWITCH TO THESE OTHER NEWSPAPERS,
23 WHICH ARE -- WHOSE HOME BASE IS ELSEWHERE.
24 Q. OKAY. NOW I WANT TO ASK YOU ABOUT SOME TESTIMONY THAT WAS
25 GIVEN BY THE DEFENDANTS' EXPERT IN THIS CASE, DR. JAMES ROSSE. 437
COMANOR - DIRECT / SHULMAN
1 ARE YOU FAMILIAR WITH DR. ROSSE?
2 A. YES, I AM.
3 Q. AND IS HE A RESPECTED ECONOMIST?
4 A. YES, HE IS.
5 Q. THE TESTIMONY I WANT TO ASK YOU ABOUT OCCURS IN HIS
6 DEPOSITION AT PAGE 31, LINES 5 TO -- I'M SORRY, IT'S PAGE 59,
7 EXCUSE ME, PAGE 59, LINES 5 THROUGH 16.
8 (PAUSE IN PROCEEDINGS.)
9 BY MR. SHULMAN:
10 Q. IN THAT TESTIMONY I ASKED MR. ROSSE THESE QUESTIONS AND HE
11 GAVE THESE ANSWERS:
12 "Q. OKAY. WOULD YOU SAY THAT DAILY
13 NEWSPAPERS IN THE CITY AND COUNTY OF SAN
14 FRANCISCO IS A MARKET?
15 "A. NO.
16 "Q. WHY NOT?
17 "A. BECAUSE THE NEWSPAPERS THAT ARE
18 PUBLISHED HERE, THE CHRONICLE AND THE EXAMINER,
19 DRAW A LOT OF THEIR BUSINESS FROM OUTSIDE OF
20 THIS -- THE CITY AND COUNTY OF SAN FRANCISCO.
21 THEY SELL A LOT OF NEWSPAPERS AND THEY SELL A
22 LOT OF ADVERTISING RELATED TO THOSE CIRCULATION
23 ELSEWHERE IN THIS REGION, ESPECIALLY THE
24 CHRONICLE. THE CHRONICLE HAS A MUCH
25 WIDER-RANGING CIRCULATION THAN THE EXAMINER 438
COMANOR - DIRECT / SHULMAN
1 DOES."
2 DOES THIS CHANGE YOUR OPINION AT ALL?
3 A. NO. I THINK THIS IS WRONG.
4 Q. AND WOULD YOU EXPLAIN WHY?
5 A. YES. IT'S QUITE COMMON FOR FIRMS TO SELL INTO MANY
6 DIFFERENT GEOGRAPHIC MARKETS. TO TAKE A VERY DIFFERENT
7 INDUSTRY, THE PHARMACEUTICAL INDUSTRY PRODUCES DRUGS HERE IN
8 THE UNITED STATES BUT SELLS IN THE UNITED STATES, SELLS IN
9 EUROPE, SELLS IN JAPAN, SELLS IN OTHER COUNTRIES. IN THESE
10 OTHER COUNTRIES THERE ARE VERY DIFFERENT SUPPLY AND DEMAND
11 CONDITIONS, DIFFERENT GOVERNMENT REGIMES, CLEARLY DIFFERENT
12 RELEVANT GEOGRAPHIC MARKETS.
13 THE FACT THAT THE U.S. EXPORTS DRUGS ABROAD DOES NOT
14 MEAN THAT THERE IS A SEPARATE -- THAT THERE IS A WORLDWIDE
15 MARKET. IT DOESN'T INDICATE ONE THING OR THE OTHER. IT MIGHT
16 BE A WORLDWIDE MARKET. IT MIGHT BE SEPARATE NATIONAL MARKETS.
17 WHAT DR. ROSSE IS SAYING IS THE FACT THAT THE
18 EXAMINER/CHRONICLE SELLS IN OTHER COUNTIES NECESSARILY MEANS
19 THAT THERE'S A COMPOSITE, BROAD LOCAL MARKET, AND THAT'S JUST
20 WRONG BECAUSE IT'S CERTAINLY CONSISTENT WITH THE IDEA THAT THE
21 CHRONICLE SELLS IN DIFFERENT COUNTIES AT DIFFERENT RATES IN
22 DIFFERENT COMPETITIVE CONDITIONS AS WELL AS SELLING IN ITS OWN
23 MARKET.
24 THIS PIECE OF INFORMATION BY ITSELF IS NOT
25 SUFFICIENT TO DRAW A CONCLUSION THAT THERE IS A REGION-WIDE 439
COMANOR - DIRECT / SHULMAN
1 GEOGRAPHIC MARKET.
2 Q. WHAT ELSE WOULD YOU NEED TO SEE IN ORDER TO REACH THE
3 CONCLUSION THAT THE MARKET IS REGIONAL RATHER THAN CONFINED TO
4 THE CITY AND COUNTY OF SAN FRANCISCO?
5 A. YOU'D LIKE TO SEE SUBSTITUTABILITY BY READERS IN VARIOUS
6 REGIONS: DO THE READERS IN CONTRA COSTA OR ALAMEDA BUY THE
7 CHRONICLE AND DO READERS IN SAN FRANCISCO BUY THESE OTHER
8 NEWSPAPERS? AND THE EVIDENCE, AS WE SAW, IS THAT THEY DO NOT.
9 SAN FRANCISCO READERS BUY THE SAN FRANCISCO CHRONICLE/EXAMINER
10 ALMOST EXCLUSIVELY, CLEARLY NOT INDICATING -- NOT INDICATIVE OF
11 A BROADER MARKET.
12 Q. AND WHAT WOULD YOU EXPECT TO SEE IN PRICING IF THERE WERE
13 A BROADER MARKET RATHER THAN THE CITY AND COUNTY OF SAN
14 FRANCISCO?
15 A. I WOULD EXPECT TO SEE COMPARABLE PRICING, COMPETITIVE
16 PRICING, WITHIN A RELEVANT -- WITHIN THE REGION. WE DON'T SEE
17 THAT. THAT'S WHY WE LOOKED AT THESE CHARTS. WE DO NOT SEE
18 COMPETITIVE PRICING THROUGHOUT THE REGION.
19 IF WE LOOK AT THE PRICING COUNTY BY COUNTY, YOU SEE
20 IN SOME CASES THERE IS COMPETITION, IN ALAMEDA COUNTY OFTEN
21 BETWEEN THE CHRONICLE/EXAMINER AND THE OAKLAND TRIBUNE, BUT
22 THAT DOES NOT CARRY OVER TO THE CITY AND COUNTY OF SAN
23 FRANCISCO.
24 Q. OKAY. NOW, WERE YOU ALSO ASKED, IN CONNECTION WITH YOUR
25 WORK IN THIS CASE, TO CONSIDER WHETHER THE SAN FRANCISCO 440
COMANOR - DIRECT / SHULMAN
1 EXAMINER IS A FAILING NEWSPAPER?
2 A. YES, I WAS.
3 Q. AND IN CONNECTION WITH DOING THAT WORK, DID YOU CONSIDER
4 THE APPROPRIATE MEANS TO, OR STANDARD, TO USE IN DETERMINING
5 WHETHER THE EXAMINER IS A FAILING NEWSPAPER?
6 A. I'M NOT QUITE SURE. SURELY A FAILING NEWSPAPER WOULD BE
7 ONE THAT WOULD BE MAKING LOSSES.
8 Q. OKAY. LET ME --
9 THE COURT: I THINK YOU'RE GETTING AHEAD OF THE
10 QUESTION.
11 BY MR. SHULMAN:
12 Q. LET ME BACK UP A LITTLE BIT AND SEE IF I CAN MAKE MY
13 QUESTION A LITTLE CLEARER.
14 YOU'RE AWARE THAT THERE IS A JOINT OPERATING
15 AGREEMENT IN EFFECT BETWEEN THE HEARST CORPORATION AND
16 CHRONICLE PUBLISHING COMPANY?
17 A. YES, I AM.
18 Q. OKAY. DID YOU, IN CONSIDERING WHETHER THE EXAMINER IS A
19 FAILING COMPANY, DID YOU ENDEAVOR TO LOOK AT HOW THE EXAMINER
20 WOULD DO OUTSIDE OF OR IN THE ABSENCE OF THE JOINT OPERATING
21 AGREEMENT?
22 A. NO. IT SEEMED TO ME --
23 Q. IS THERE -- THE ANSWER TO THAT IS NO?
24 A. (WITNESS NODS HEAD.)
25 Q. DID YOU CONSIDER WHETHER THAT WAS APPROPRIATE? 441
COMANOR - DIRECT / SHULMAN
1 A. YES.
2 Q. AND WHAT CONCLUSION DID YOU DRAW?
3 A. I CONSIDERED THAT NOT TO BE APPROPRIATE.
4 Q. WHY DID YOU CONSIDER THAT NOT TO BE APPROPRIATE? WOULD
5 YOU STATE THE REASONS, PLEASE.
6 A. YES. WHEN THE JOA WAS CREATED, THERE WERE VARIOUS
7 ELEMENTS OF THAT AGREEMENT. ONE IS THAT THE EXAMINER WOULD
8 SHIFT FROM A MORNING NEWSPAPER TO AN AFTERNOON NEWSPAPER.
9 ANOTHER IS THAT THEY WOULD COMBINE THEIR PUBLISHING AND
10 PRINTING AND OTHER BUSINESS ASSETS, OTHER DISTRIBUTION ASSETS,
11 TOGETHER. AND THREE IS THAT THEY WOULD DIVIDE THE NET REVENUES
12 EVENLY BETWEEN THE TWO.
13 IT SEEMS TO ME THAT THE FORTUNES OF THE EXAMINER
14 DEPEND ON ALL OF THEM. YOU CAN'T LOOK AT JUST ONE PART WITHOUT
15 THE OTHER PART.
16 THE EXAMINER HAS LOWER CIRCULATION THAN THE
17 CHRONICLE; BUT, ACCORDING TO ITS AGREEMENT, IT RECEIVES HALF OF
18 THE NET REVENUES. ONE OF THE REASONS IT HAS LOWER CIRCULATION
19 PERHAPS IS THAT IT'S AN AFTERNOON NEWSPAPER.
20 SO IT SEEMED TO ME THAT IF YOU'RE GOING TO LOOK AT
21 THE FORTUNES OF THE EXAMINER AS A BUSINESS, YOU HAVE TO LOOK AT
22 IT IN THE CONTEXT -- IN THE ECONOMIC AND BUSINESS CONTEXT IN
23 WHICH IT HAS OPERATED FOR MANY YEARS; AND WHEN YOU DO THAT, YOU
24 SEE, ACCORDING TO THE EXAMINER'S OWN NUMBERS, THAT IT IS HARDLY
25 A FAILING COMPANY. 442
COMANOR - DIRECT / SHULMAN
1 Q. NOW, YOU SAID THAT THE ECONOMIC FORTUNES OF THE EXAMINER
2 HAVE BEEN DETERMINED BY OR BOUND UP WITH THE JOINT OPERATING
3 AGREEMENT; CORRECT?
4 A. YES.
5 Q. IS THAT ALSO TRUE FOR THE CHRONICLE?
6 A. YES.
7 Q. CAN YOU EXPLAIN THAT?
8 A. THE CHRONICLE AND EXAMINER CAME TOGETHER TO HAVE AN
9 AGREEMENT, THE JOINT OPERATING ARRANGEMENT. THE CHRONICLE
10 BENEFITED BY BEING THE ONLY MORNING NEWSPAPER. IT ALSO AGREED
11 THAT THE NET REVENUES WOULD BE DIVIDED EVENLY.
12 THE EXAMINER GAINED FROM AN EQUAL DIVISION OF THE
13 REVENUES, BUT IT HAD TO DEAL WITH THE FACT THAT IT'S AN
14 AFTERNOON NEWSPAPER, WHICH HAS OTHER IMPLICATIONS.
15 I DON'T THINK YOU CAN DEAL WITH THE FORTUNES OF
16 EITHER NEWSPAPER SEPARATE FROM THE JOA, WHICH HAS RULED THEIR
17 RELATIONSHIPS, RULED THEIR ECONOMIC ARRANGEMENTS FOR A
18 SUBSTANTIAL PERIOD OF TIME.
19 Q. ALL RIGHT. LOOKING AT THE EXAMINER WITHIN THE CONTEXT OF
20 THE JOA, IS IT YOUR OPINION THAT THE EXAMINER IS OR IS NOT A
21 FAILING COMPANY?
22 A. IT IS NOT A FAILING BUSINESS.
23 Q. AND WOULD YOU EXPLAIN THE GROUNDS FOR YOUR OPINION THAT
24 THE EXAMINER IS NOT A FAILING BUSINESS?
25 A. YES. I LOOKED AT SOME DATA, WHICH WAS PROVIDED ME FROM 443
COMANOR - DIRECT / SHULMAN
1 THE EXAMINER, AND I DEALT WITH THE PERIOD OF 1990'S, MOST OF
2 1990'S, FROM JANUARY 1, 1990, THROUGH DECEMBER 31, 1998.
3 CUMULATIVE NET INCOME WAS $35.7 MILLION, CUMULATIVE FUNDS FROM
4 OPERATIONS WERE $99 MILLION, CUMULATIVE HEARST CAPITAL
5 INVESTMENT IN THIS BUSINESS WAS $53.6 MILLION.
6 NOTE THAT THE DIFFERENCE BETWEEN NET INCOME AND
7 FUNDS FROM OPERATION IS LARGELY DEPRECIATION WHICH HERE AMOUNTS
8 TO OVER $63 MILLION OF WHICH MOST OF THAT SUM WAS REINVESTED IN
9 THE BUSINESS. THAT IS HARDLY A PICTURE OF A FIRM EXPECTING TO
10 GO OUT OF BUSINESS. THIS IS A FIRM THAT'S REINVESTING, THAT'S
11 OPERATING AS THOUGH IT EXPECTS TO BE IN THIS MARKET, AND SEEMS
12 TO ME NOT A PICTURE OF A FAILING BUSINESS.
13 I NOTE, OF COURSE, THAT THESE NUMBERS DO NOT --
14 IGNORE DISCOUNTING PRICE CHANGES, SO THESE ARE SIMPLY
15 APPROXIMATE VALUES BUT THEY ARE CERTAINLY NOT INDICATIVE OF A
16 FAILING COMPANY.
17 Q. NOW, YOU UNDERSTAND THAT THE JOINT OPERATING AGREEMENT
18 WILL RUN INTO AND THROUGH MOST OF THE YEAR 2005?
19 A. YES, I DO.
20 Q. DID YOU FORM AN OPINION AS TO WHETHER FOR THE PERIOD FROM
21 NOW UNTIL THE END OF THE JOA THE SAN FRANCISCO EXAMINER IS A
22 FAILING NEWSPAPER?
23 A. YES, I HAVE AN OPINION.
24 Q. AND WHAT IS YOUR OPINION?
25 A. CLEARLY FROM NOW THROUGH 2005, UNDER THE JOA, THE EXAMINER 444
COMANOR - DIRECT / SHULMAN
1 IS NOT A FAILING BUSINESS.
2 Q. AND WHAT IS THE BASIS FOR THAT OPINION?
3 A. THE PROFITABILITY OF THE ENTERPRISE THROUGH THE 1990'S AND
4 THE EXPECTATION THAT THIS WILL CONTINUE THROUGH THE PERIOD OF
5 THE JOA.
6 Q. SO YOU EXPECT THOSE PROFITS TO CONTINUE UNTIL THE END OF
7 THE JOA?
8 A. CERTAINLY.
9 Q. NOW, WHAT ABOUT 2005 WHEN THE JOA ENDS? ARE YOU ABLE --
10 DO YOU HAVE AN OPINION AS TO WHETHER THE EXAMINER IS LIKELY OR
11 IS GOING TO BE A FAILING COMPANY FIVE YEARS FROM NOW?
12 A. NO.
13 Q. OKAY. DID YOU CONSIDER WHETHER --
14 THE COURT: NO, YOU DO NOT HAVE AN OPINION?
15 THE WITNESS: I DO NOT HAVE AN OPINION.
16 BY MR. SHULMAN:
17 Q. DID YOU CONSIDER WHETHER IT WAS APPROPRIATE TO FORM AN
18 OPINION?
19 A. I THINK IT'S VERY DIFFICULT TO PREDICT WHAT THE WORLD WILL
20 BE LIKE FIVE YEARS FROM NOW FOR TWO MAJOR REASONS. ONE IS, THE
21 INCREASING IMPORTANCE OF THE INTERNET AS A MEANS OF
22 DISTRIBUTING NEWSPAPERS, NEWS CONTENT. I DON'T KNOW THAT I CAN
23 PREDICT WHAT THE WORLD WILL BE LIKE WITH THE INCREASING
24 IMPORTANCE OF THE INTERNET.
25 SECOND, I NOTE THE HEARST'S CORPORATION STATED 445
COMANOR - DIRECT / SHULMAN
1 INTENTION NO MATTER WHAT TO REMAIN IN THE SAN FRANCISCO
2 NEWSPAPER MARKET. IT'S A LARGE COMPANY WITH SUBSTANTIAL
3 RESOURCES. THEY STATED THEIR INTENTION IS TO REMAIN IN THIS
4 MARKET. I DON'T KNOW WHAT -- WHETHER THAT WILL BE SUFFICIENT
5 TO HAVE THEM REMAIN IN THE MARKET EVEN THOUGH THEY ARE THE
6 SMALLER NEWSPAPER FOLLOWING 2005.
7 I DON'T KNOW THAT ANYONE CAN REALLY PREDICT WHAT THE
8 WORLD WILL BE LIKE FIVE YEARS FROM NOW WHEN THE JOA ENDS.
9 Q. NOW, WHAT DOES THE -- WHAT EFFECT -- WHAT ARE THE
10 POTENTIAL EFFECTS OF THE INTERNET AS A MEANS OF NEWSPAPER
11 DELIVERY?
12 A. IT MAY MAKE IT MORE LIKELY THAT YOU CAN SEE RIVAL
13 NEWSPAPERS BOTH BE SUCCESSFUL. I DON'T KNOW. I DON'T THINK
14 ANYONE KNOWS HOW THE INTERNET WILL CHANGE THE WORLD IN TERMS OF
15 NEWSPAPERS. IT'S A VERY DIFFICULT FORECASTING ISSUE, AND I
16 DON'T HAVE AN OPINION.
17 Q. WELL, HOW COULD THE INTERNET AFFECT NEWSPAPER DELIVERY?
18 A. IT COULD MAKE IT MUCH MORE ECONOMICAL TO DISTRIBUTE
19 NEWSPAPERS. IT COULD CHANGE THE NATURE OF READERSHIP. IT'S
20 DIFFICULT TO FORECAST THESE SORTS OF ISSUES.
21 MR. SHULMAN: I'M ABOUT TO MOVE TO ANOTHER TOPIC. I
22 DON'T KNOW WHAT THE COURT'S SCHEDULE IS.
23 THE COURT: I'M FINE, BUT IF YOU --
24 MR. SHULMAN: NO, NO, I'M FINE.
25 THE COURT: -- WANT A BREAK -- 446
COMANOR - DIRECT / SHULMAN
1 MR. SHULMAN: NO, I WILL CONTINUE. THAT'S FINE.
2 THE COURT: HOW IS THE WITNESS?
3 THE WITNESS: I WOULDN'T MIND A BREAK NOW IF IT'S
4 OKAY.
5 THE COURT: WHY DON'T WE TAKE 10 MINUTES AND WE'LL
6 RESUME AT A QUARTER OF.
7 THE WITNESS: THANK YOU, YOUR HONOR.
8 (RECESS TAKEN AT 10:35 A.M.)
9 (PROCEEDINGS RESUMED AT 10:45 A.M.)
10 THE COURT: VERY WELL, MR. SHULMAN, YOU MAY CONTINUE
11 YOUR EXAMINATION OF THIS WITNESS.
12 MR. SHULMAN: THANK YOU. MAY IT PLEASE THE COURT.
13 Q. DR. COMANOR, IN CONNECTION WITH YOUR WORK, DID YOU EXAMINE
14 AT ALL THE AGREEMENT THAT WAS MADE BETWEEN THE HEARST
15 CORPORATION AND INTERVENOR EXIN, THE FANG FAMILY?
16 A. YES, I DID.
17 Q. AND CAN YOU, WITHOUT GETTING INTO YOUR OPINIONS AND
18 CONCLUSIONS, CAN YOU BRIEFLY EXPLAIN WHAT YOU DID?
19 A. I REVIEWED VARIOUS DOCUMENTS DESCRIBING THE CONTRACT, AND
20 I READ -- I REVIEWED THE CONTRACT NOT IN EVERY WORD, BUT IN
21 PERTINENT PART, AND I THINK I UNDERSTOOD THE CRITICAL
22 FACTORS -- CRITICAL FEATURES ABOUT THE CONTRACT.
23 Q. DID YOU, IN ANALYZING THE CONTRACT, DID YOU DETERMINE THAT
24 THE CONTRACT INVOLVES WHAT IS KNOWN AS A NEGATIVE PRICE?
25 A. YES. I NOTE THAT THERE ARE VARIOUS DOCUMENTS PRODUCED BY 447
COMANOR - DIRECT / SHULMAN
1 THE DEFENDANTS IN THIS MATTER WHERE THEY ACKNOWLEDGE THAT THE
2 SALE OF THE EXAMINER TO THE FANGS REPRESENTS A NEGATIVE PRICE
3 IN THAT YOU'RE PAYING SOMEONE TO TAKE THE PRODUCT.
4 Q. THAT'S WHAT A NEGATIVE PRICE IS?
5 A. YES.
6 Q. NOW, DID YOU ALSO CONSIDER WHETHER THE AGREEMENT CONTAINED
7 ANY INCENTIVES, FROM AN ECONOMIC STANDPOINT, THAT WOULD LIMIT
8 THE AMOUNT OF MONEY SPENT IN THE PRODUCTION OF THE PAPER?
9 A. YES, I DID.
10 Q. AND DID YOU FIND THAT THERE WERE SUCH INCENTIVES TO LIMIT
11 THE AMOUNT OF MONEY TO BE SPENT IN CONNECTION WITH THE
12 PRODUCTION OF THE PAPER?
13 A. YES, I DID.
14 Q. ALL RIGHT. WOULD YOU EXPLAIN, PLEASE, WHAT THEY ARE.
15 A. OKAY. I THINK IT'S EASIEST TO LOOK AT YEARS TWO AND
16 THREE BECAUSE IT'S -- THEY'RE FULL YEARS. SO LET ME FOCUS ON
17 THAT, ALTHOUGH THE PROVISIONS CARRY OVER INTO THE FIRST YEAR AS
18 WELL.
19 THE COURT: SHOULD I HAVE THE CONTRACT BEFORE ME?
20 MR. SHULMAN: WE CAN DO THAT, YOUR HONOR. IT'S
21 EXHIBIT 35. IT IS IN EVIDENCE.
22 THE COURT: AS EXHIBIT 35?
23 MR. SHULMAN: YES.
24 THE COURT: THANK YOU, SIR.
25 THE WITNESS: I DON'T HAVE A COPY OF IT. 448
COMANOR - DIRECT / SHULMAN
1 MR. SHULMAN: WE'LL GET THAT FOR YOU.
2 (PAUSE IN PROCEEDINGS.)
3 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
4 HONOR?
5 THE COURT: YES, YOU MAY.
6 MR. SHULMAN: AND MAY I USE THE EASEL AS WELL?
7 THE COURT: THAT WOULD BE FINE.
8 MR. SHULMAN: THANK YOU.
9 (PAUSE IN PROCEEDINGS.)
10 BY MR. SHULMAN:
11 Q. ALL RIGHT. DR. COMANOR, YOU WERE SAYING THAT YOU SUGGEST
12 THAT WE TAKE THE SECOND AND THIRD -- SECOND OR THE THIRD YEAR
13 OF THE CONTRACT AND YOU WERE GOING TO EXPLAIN ABOUT THE
14 DISINCENTIVES.
15 A. YES, SIR.
16 Q. OKAY. WOULD YOU DO THAT, PLEASE.
17 A. IT SAYS -- THE PROVISION SAYS THAT HEARST WILL REIMBURSE
18 EXAMINER COSTS UP TO A MAXIMUM OF $25 MILLION A YEAR.
19 Q. OKAY. I'M GOING TO WRITE ON THE EASEL 25 MILLION PER
20 YEAR. THAT IS WHAT -- THE MAXIMUM THAT HEARST WILL REIMBURSE?
21 A. YES.
22 Q. OKAY. EXPLAIN HOW THE DISINCENTIVE WORKS.
23 A. THERE'S ANOTHER PROVISION SAYS THAT HEARST WILL PAY THE
24 FANGS ONE HALF OF THE DIFFERENCE BETWEEN 25 MILLION AND
25 REIMBURSABLE COSTS UP TO A MAXIMUM OF $5 MILLION PER YEAR. 449
COMANOR - DIRECT / SHULMAN
1 Q. 5 OR 15? OH, OH, I SEE WHAT YOU'RE SAYING, YES.
2 THE COURT: WELL, I DON'T. WHAT PAGE ARE YOU
3 READING FROM?
4 THE WITNESS: WELL, IF YOU LOOK AT PAGES 5 AND 6.
5 BY MR. SHULMAN:
6 Q. THIS IS OF THE CONTRACT?
7 A. OF THE CONTRACT.
8 THE COURT: THAT'S PROVISION 1.4(B)?
9 THE WITNESS: (B).
10 THE COURT: VERY WELL.
11 THE WITNESS: IT'S IN THERE. I'LL HAVE TO FIND IT.
12 IT'S NOT EASILY FOUND IN THERE.
13 THE COURT: WELL, I THINK I'VE LOCATED IT ABOUT THE,
14 WHAT'S THAT, THE SIXTH LINE DOWN, THEREABOUTS?
15 THE WITNESS: (WITNESS EXAMINES DOCUMENT.)
16 THE COURT: SUBSECTION (B).
17 THE WITNESS: IT SAYS -- IT SAYS 25-MILLION-DOLLAR
18 FIGURE IS THERE, THAT IS CORRECT.
19 THE COURT: YES.
20 THE WITNESS: BUT IT'S THE SECOND POINT THAT I
21 JUST....
22 (WITNESS EXAMINES DOCUMENT.) OH, HERE IT IS, ON THE
23 TOP OF PAGE 6, YOUR HONOR.
24 BY MR. SHULMAN:
25 Q. IF YOU START AT THE BOTTOM -- WOULD YOU START AT THE 450
COMANOR - DIRECT / SHULMAN
1 BOTTOM OF PAGE 5 FIRST, DR. COMANOR?
2 A. YES.
3 THE COURT: "IF AT THE END OF A REIMBURSEMENT YEAR"?
4 MR. ALIOTO: YES.
5 THE WITNESS: DO YOU WANT ME TO READ THAT?
6 MR. SHULMAN: PLEASE.
7 THE COURT: YES.
8 THE WITNESS: "IF AT THE END OF A REIMBURSEMENT YEAR
9 THE BUYER'S AGGREGATE REIMBURSABLE COSTS FOR
10 SUCH YEAR, AS SET FORTH IN THE COST STATEMENT AS
11 DEFINED BELOW, ARE $15 MILLION OR MORE BUT LESS
12 THAN THE CAP AMOUNT," WHICH IS HERE $25 MILLION,
13 "THE COMPANY SHALL PAY TO BUYER, IN ADDITION TO
14 THE REIMBURSABLE COSTS FOR SUCH YEAR, ONE HALF
15 OF THE AMOUNT BY WHICH THE CAP AMOUNT EXCEEDS
16 BUYER'S REIMBURSABLE COSTS FOR SUCH YEAR BUT NOT
17 MORE THAN $5 MILLION."
18 THE COURT: THAT'S NOT CRYSTAL CLEAR ON FIRST
19 READING.
20 THE WITNESS: I AGREE WITH THAT.
21 BY MR. SHULMAN:
22 Q. LET US SUPPOSE THAT THE -- WELL, WHAT ARE REIMBURSABLE
23 COSTS?
24 A. COSTS TO PRODUCE THE EXAMINER. WE COULD GO THROUGH THEM,
25 BUT THEY'RE LISTED. 451
COMANOR - DIRECT / SHULMAN
1 Q. OKAY. LET US SUPPOSE THAT THE REIMBURSABLE COSTS ARE
2 $15 MILLION, ALL RIGHT?
3 A. YES.
4 Q. OKAY. I'M GOING TO WRITE 15 MILLION ON THE EASEL.
5 THE COURT: REIMBURSABLE COSTS, I GATHER, IS A
6 DEFINED TERM IN THE CONTRACT; IS THAT RIGHT?
7 THE WITNESS: YES.
8 THE COURT: WHERE IS IT DEFINED?
9 THE WITNESS: (WITNESS EXAMINES DOCUMENT.)
10 MR. SHULMAN: I THINK IT'S ON PAGE 5, YOUR HONOR.
11 MR. HOCKETT: PAGE 6.
12 MR. SHULMAN: PAGE 6, SORRY.
13 THE COURT: YES, I SEE, PAGE 6.
14 (PAUSE IN PROCEEDINGS.)
15 THE COURT: ONE MIGHT THINK THIS CONTRACT WAS
16 DRAFTED IN PHILADELPHIA.
17 (LAUGHTER)
18 THE COURT: ALL RIGHT.
19 BY MR. SHULMAN:
20 Q. OKAY. NOW, LET US SUPPOSE THAT THE REIMBURSABLE COSTS ARE
21 $15 MILLION. AND "REIMBURSABLE" MEANS REIMBURSED BY WHOM?
22 A. BY HEARST.
23 Q. OKAY. LET US ASSUME, THEN, THAT HEARST -- THE COSTS FOR
24 WHICH THE EXIN SEEKS REIMBURSEMENT ARE $15 MILLION, SO THE
25 DIFFERENCE BETWEEN 25 AND $15 MILLION, THIS IS A TOUGH QUESTION 452
COMANOR - DIRECT / SHULMAN
1 FOR AN ECONOMIST, IS HOW MUCH?
2 A. $10 MILLION.
3 Q. THAT IS A $10 MILLION DIFFERENCE. AND SO THESE ARE COSTS
4 OR THIS IS THE DIFFERENCE BETWEEN THE MAXIMUM THAT HEARST WILL
5 PAY AND, SAY, THE ACTUAL COSTS PAID OF $15 MILLION.
6 NOW, MY QUESTION IS: WHAT HAPPENS WITH REGARD TO
7 THIS 10-MILLION-DOLLAR DIFFERENCE BETWEEN THE AMOUNT THAT
8 HEARST HAS ACTUALLY PAID AND THE MAXIMUM AMOUNT THAT THEY WOULD
9 PAY, 25 MILLION?
10 A. WELL, THE CONTRACT PROVIDES THAT HEARST WILL ALSO PAY ONE
11 HALF OF THAT DIFFERENCE OR ONE HALF OF 10 OR $5 MILLION, SO
12 THAT THE TOTAL PAYMENT WOULD BE 15 PLUS 5 OR $20 MILLION.
13 Q. SO ONE HALF OF THE 10-MILLION-DOLLAR DIFFERENCE IS
14 5 MILLION?
15 A. YES.
16 Q. AND THE $5 MILLION IS ALSO PAID TO EXIN?
17 A. YES. THAT'S IN ADDITION TO THE $15 MILLION.
18 Q. OKAY. NOW, HOW IS THAT A DISINCENTIVE TO INVEST IN THE
19 PAPER?
20 A. I THINK THE EASIEST WAY IS TO DO THE SAME NUMBERS. LET'S
21 ASSUME IT'S $16 MILLION IN COSTS. WE NOW KNOW THE TOTAL IN
22 THIS SCENARIO, THE TOTAL RECEIPTS BY THE FANGS IS $20 MILLION.
23 DO YOU WANT TO PUT THAT DOWN? TOTAL PAYMENT
24 RECEIVED IS $20 MILLION.
25 Q. 20 MILLION TOTAL. 453
COMANOR - DIRECT / SHULMAN
1 A. RIGHT. NOW LET'S DO THE SAME THING WITH INSTEAD OF 15 DO
2 16, AND YOU'LL SEE.
3 Q. OKAY. THE MAXIMUM, AGAIN, IS 25. SAY THE ACTUAL COSTS
4 ARE 16. AND THAT'S YOUR HYPOTHETICAL?
5 A. YES.
6 Q. YOU SUBTRACT THAT AND WE GET $9 MILLION; RIGHT?
7 A. $9 MILLION DIFFERENCE.
8 Q. OKAY.
9 A. ACCORDING TO THE CONTRACT, THE BUYER ALSO RECEIVES HALF OF
10 9 OR 4.5.
11 Q. ALL RIGHT.
12 A. ALL RIGHT.
13 Q. YEAH.
14 A. AND THEN LET'S ADD 4.5 AND 16.
15 Q. THAT'S 20 AND A HALF.
16 A. THAT'S 20.5.
17 Q. WOULD BE THE TOTAL AMOUNT --
18 A. TOTAL AMOUNT RECEIVED BY THE BUYER.
19 NOTE THAT THE BUYER SPENDS AN EXTRA $1 MILLION ON
20 EXPENDITURES BUT RECEIVES ONLY AN ADDITIONAL HALF MILLION
21 DOLLARS OF PAYMENT FROM THE HEARSTS, WHICH LEADS ME TO THE
22 CONCLUSION THAT FOR EVERY DOLLAR SPENT ON COSTS BEYOND
23 $15 MILLION, FANG LOSES 50 CENTS OF THE ADDITIONAL PAYMENT. IN
24 EFFECT, BEYOND $15 MILLION HE'S REIMBURSED FOR ONLY 50 CENTS ON
25 THE DOLLAR FOR ALL COSTS. 454
COMANOR - DIRECT / SHULMAN
1 SO THERE'S A CLEAR INCENTIVE TO SPEND MORE THAN 15
2 UNLESS, OF COURSE, THERE'S ADDITIONAL REVENUES ASSOCIATED WITH
3 IT. BUT ASSUMING THAT THERE'S NO DIFFERENCE IN REVENUES, WHY
4 WOULD YOU SPEND A DOLLAR AND ONLY GET 50 CENTS BACK? YOU
5 WOULDN'T DO IT.
6 Q. NOW, HAVE YOU REVIEWED THE HEARST'S HART-SCOTT-RODINO
7 FILINGS IN CONNECTION WITH THIS ACQUISITION?
8 A. YES, I HAVE.
9 Q. AND WHAT DO THE HEARST FILINGS WITH THE UNITED STATES
10 GOVERNMENT DEPARTMENT OF JUSTICE TELL YOU, IF ANYTHING, ABOUT
11 WHETHER EXIN IS LIKELY TO INVEST IN THIS PAPER?
12 A. THE SUBSTANCE OF THE REPORT SUBMITTED, THE ECONOMIC
13 REPORT, SUBMITTED BY HEARST IN ITS HSR FILING, IS THAT THERE IS
14 NO CHANCE OR LITTLE CHANCE THAT THE EXAMINER WOULD BE AN
15 EFFECTIVE BUSINESS ABSENT THE JOA.
16 Q. ALL RIGHT. LET ME --
17 MR. SHULMAN: COULD I HAVE EXHIBITS 16 AND 94,
18 PLEASE.
19 (PAUSE IN PROCEEDINGS.)
20 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
21 HONOR?
22 THE COURT: YOU MAY.
23 MR. SHULMAN: EXCUSE ME.
24 (PAUSE IN PROCEEDINGS.)
25 455
COMANOR - DIRECT / SHULMAN
1 BY MR. SHULMAN:
2 Q. YOU HAVE 94; RIGHT? DID I ALSO GIVE YOU 16?
3 A. NO, I ONLY HAVE 94.
4 Q. ALL RIGHT. SORRY. I HAVE IT. MY FAULT. LET ME --
5 MR. SHULMAN: MAY I APPROACH THE WITNESS?
6 THE COURT: YOU MAY.
7 BY MR. SHULMAN:
8 Q. I'M GOING TO HAND YOU EXHIBIT 16 AS WELL. EXHIBIT 16 IN
9 EVIDENCE -- WELL, LET'S START WITH 94.
10 94 IS AN ANALYSIS OF THE PROPOSED HEARST ACQUISITION
11 OF THE CHRONICLE PREPARED FOR SUBMISSION TO THE UNITED
12 STATES -- TO THE ANTITRUST DIVISION OF THE U.S. DEPARTMENT OF
13 JUSTICE BY DR. JOSEPH W. MC ANNENY, ECONOMIST, INCORPORATED,
14 WASHINGTON, D.C., OCTOBER 5, 1999. ARE YOU FAMILIAR WITH THIS?
15 A. YES.
16 Q. OKAY. IF YOU LOOK AT THE THIRD PAGE, AND IS THIS WHAT
17 YOU'RE REFERRING TO AS PART OF THE HART-SCOTT-RODINO SUBMISSION
18 BY HEARST?
19 A. YES. AND I NOTE THAT --
20 THE COURT: LET'S SEE, THIS IS EXHIBIT --
21 MR. SHULMAN: YOUR HONOR, THIS IS EXHIBIT 94.
22 (PAUSE IN PROCEEDINGS.)
23 THE COURT: ALL RIGHT.
24 BY MR. SHULMAN:
25 Q. ALL RIGHT. I WANT TO DIRECT YOUR ATTENTION TO THE THIRD 456
COMANOR - DIRECT / SHULMAN
1 PAGE OF THE DOCUMENT, FIRST PARAGRAPH.
2 A. IT'S ENTITLED "PAGE 2" EVEN THOUGH IT'S THE THIRD PAGE.
3 Q. RIGHT. IT'S -- AT THE TOP IT SAYS PAGE 2. THAT'S IT.
4 AND I WANT TO DIRECT YOUR ATTENTION TO THE FIRST
5 PARAGRAPH AT THE TOP OF THE PAGE, THE SENTENCE THAT BEGINS:
6 "THE PAPER," MEANING THIS PAPER, "CONCLUDES
7 THAT AN INDEPENDENT POST-JOA EXAMINER, AS THE
8 JUNIOR PAPER, COULD NOT ESCAPE THE ECONOMICS OF
9 THE DOWNWARD SPIRAL NORMALLY ASSOCIATED WITH THE
10 JUNIOR PAPER WHEN TWO NEWSPAPERS COMPETE HEAD TO
11 HEAD IN THE SAME CITY AND THAT THERE ARE NO
12 COMMERCIALLY VIABLE OPTIONS AVAILABLE TO
13 MAINTAIN THE EXAMINER AS A SECOND COMPETITIVE
14 DAILY NEWSPAPER IN SAN FRANCISCO."
15 DO YOU SEE THAT STATEMENT?
16 A. YES, I DO.
17 Q. AND ARE YOU AWARE THAT THIS IS WHAT HEARST COMMUNICATED TO
18 THE DEPARTMENT OF JUSTICE IN OCTOBER OF 1959 (SIC) AFTER THEY
19 HAD AGREED TO BUY THE CHRONICLE?
20 A. 1999.
21 Q. 1999.
22 A. YES, SIR.
23 Q. OKAY. WHAT, IF ANYTHING, DOES THAT TELL YOU ABOUT THE
24 CHANCES OF EXIN IN LIGHT OF THE OTHER TESTIMONY YOU'VE GIVEN
25 ABOUT THE AGREEMENT? 457
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1 A. THIS ANALYSIS IS DEDICATED TO THE PROPOSITION THAT THE
2 EXAMINER CANNOT -- IS NOT A VIABLE ENTERPRISE AFTER THE JOA IS
3 CONCLUDED. THAT'S THE ESSENCE OF THIS ANALYSIS. THAT'S WHAT
4 THIS PAPER SAYS.
5 Q. AND WHAT DOES THAT TELL YOU ABOUT THE CHANCES OF THE
6 FANGS?
7 A. THAT THEIR CHANCES ARE MINIMAL IF THEY WANT TO ENGAGE IN
8 HEAD-TO-HEAD COMPETITION.
9 Q. OKAY. NOW I WANT TO DIRECT YOUR ATTENTION TO EXHIBIT 16
10 IN EVIDENCE, WHICH IS ENTITLED "RESPONSE TO INTERROGATORY
11 SPECIFICATIONS CONTAINED IN REQUEST FOR ADDITIONAL INFORMATION
12 AND DOCUMENTARY MATERIAL ISSUED TO THE HEARST CORPORATION ON
13 OCTOBER 15, 1999." DO YOU SEE THIS?
14 A. YES, I DO.
15 Q. OKAY. AND IS THIS PART OF HEARST'S SUBMISSION TO THE
16 DEPARTMENT OF JUSTICE?
17 A. YES, IT IS.
18 Q. ALL RIGHT. WOULD YOU LOOK, PLEASE, AT PAGE 19 OF THESE
19 RESPONSES BY HEARST CORPORATION?
20 A. YES, SIR.
21 Q. AND I WANT TO DIRECT YOUR ATTENTION TO WHAT BEGINS ON LINE
22 18, THE RESPONSE TO SPECIFICATION NUMBER 13.
23 A. YES, SIR.
24 Q. THAT SAYS, QUOTE:
25 "HEARST DOES NOT BELIEVE THAT ENTRY INTO THE 458
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1 METROPOLITAN DAILY NEWSPAPER BUSINESS IN THE
2 RELEVANT AREA IN DIRECT COMPETITION WITH THE
3 COMBINED SAN FRANCISCO CHRONICLE AND EXAMINER
4 NEWSPAPERS (OR THE CHRONICLE ALONE) IS EITHER
5 ECONOMICALLY FEASIBLE OR RATIONAL BUSINESS
6 BEHAVIOR."
7 DO YOU SEE THAT?
8 A. YES, I DO.
9 Q. WHAT DOES THAT TELL YOU ABOUT THE CHANCES OF THE FANGS
10 WITH THE EXAMINER UNDER THEIR ARRANGEMENT WITH HEARST?
11 A. IT SUGGESTS TO ME THAT HEARST DOES NOT BELIEVE THAT THE
12 BUYERS OF THE EXAMINER HAVE MUCH CHANCE TO MAKE A GO OF IT.
13 Q. DOES IT SUGGEST THEY HAVE ANY CHANCE?
14 A. IT SUGGESTS THEY HAVE LITTLE OR NO CHANCE.
15 Q. ALL RIGHT. NOW I WANT TO DIRECT YOUR ATTENTION AGAIN TO
16 SOME TESTIMONY THAT WAS GIVEN BY DR. ROSSE, THE DEFENDANTS'
17 EXPERT, AND I AM SPECIFICALLY REFERRING TO PAGE 31, LINE --
18 WE'LL START WITH LINE 6.
19 A. YES, SIR.
20 Q. I'M GOING TO GO TO LINE 21.
21 MR. SHULMAN: DOES YOUR HONOR HAVE IT?
22 THE COURT: I DO.
23 BY MR. SHULMAN:
24 Q. OKAY. HE WAS ASKED A QUESTION -- I ASKED HIM THIS
25 QUESTION, THIS IS CONCERNING THE FANGS: 459
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1 "Q. NOW, AND I THINK YOU SAID IF HE CAN
2 IDENTIFY A MARKET OR FIND A NICHE, YOU THINK HE
3 HAS A CHANCE.
4 "A. UH-HUH.
5 "Q. WHAT DO YOU MEAN 'IDENTIFY A MARKET OR
6 FIND A NICHE'?
7 "A. I DON'T THINK HE'S GOT A CHANCE. IF HE
8 TRIES TO PRODUCE A NEWSPAPER WHICH ATTEMPTS TO
9 DUPLICATE THE ADVERTISING AND CIRCULATION
10 CHARACTERISTICS OF THE CHRONICLE, I DON'T THINK
11 THERE'S ANY CHANCE IN THE WORLD. HE SIMPLY WILL
12 NOT HAVE A LARGE ENOUGH NEWSPAPER AND THE
13 ECONOMIES OF SCALE AND THE OTHER THINGS WE JUST
14 FINISHED TALKING ABOUT WILL MAKE IT VERY, VERY
15 DIFFICULT FOR HIM TO SURVIVE WITH THAT KIND OF A
16 PAPER."
17 DO YOU SEE THAT TESTIMONY?
18 A. YES, I DO.
19 Q. OKAY. WHAT EFFECT, IF ANY, DOES THAT TESTIMONY HAVE ON
20 YOUR OPINION ABOUT THE CHANCES OF THE FANGS?
21 A. THAT'S CERTAINLY CONSISTENT WITH THE OTHER EVIDENCE THAT
22 WE'VE MENTIONED, THAT THE EFFORT -- ANY EFFORT OF THE FANGS TO
23 PRODUCE A CHRONICLE, WHICH IS IN DIRECT COMPETITION -- PARDON
24 ME, TO PRODUCE AN EXAMINER WHICH IS IN DIRECT COMPETITION WITH
25 THE CHRONICLE IS DOOMED TO FAIL. DR. ROSSE SAYS THAT. I 460
COMANOR - DIRECT / SHULMAN
1 AGREE.
2 Q. WAS ONE OF THE -- I'M GOING TO MOVE TO ANOTHER SUBJECT.
3 WAS ONE OF THE SUBJECTS ON WHICH YOUR EXPERTISE WAS
4 REQUESTED THE EFFECT ON COMPETITION IN THE RELEVANT MARKET OF
5 HEARST'S ACQUISITION OF THE CHRONICLE?
6 A. YES, SIR.
7 Q. OKAY. NOW, YOU HAVE ALREADY TESTIFIED CONCERNING YOUR
8 DEPOSITION OF THE RELEVANT MARKET; RIGHT?
9 A. YES, SIR.
10 Q. WHEN YOU CONSIDERED THE EFFECT ON COMPETITION OF HEARST'S
11 ACQUISITION OF THE CHRONICLE IN THAT RELEVANT MARKET, DID YOU
12 CONSIDER THE APPLICABLE STANDARD OR DEFINITION OF COMPETITION
13 THAT YOU WERE GOING TO USE?
14 A. YES, I DID.
15 Q. OKAY. AS AN ECONOMIST IN THE ECONOMIC LITERATURE IN YOUR
16 PROFESSION, IS THERE MORE THAN ONE STANDARD OR MODEL FOR
17 DEFINING COMPETITION?
18 A. YES, THERE ARE.
19 Q. HOW MANY ARE THERE?
20 A. A NUMBER OF STANDARDS WHICH HAVE BEEN PROPOSED BY WHICH
21 THE ANTITRUST LAWS SHOULD BE ADMINISTERED.
22 Q. AND THESE ARE STANDARDS THAT ECONOMISTS CONSIDER?
23 A. YES.
24 Q. OKAY. WHAT ARE THE STANDARDS, THE MODELS?
25 A. ONE IS A STANDARD OF ALLOCATIVE EFFICIENCY OR MARKET 461
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1 POWER. ANOTHER IS A STANDARD BASED ON THE NUMBER OF
2 COMPETITORS IN A MARKET. THOSE ARE TWO TYPES OF STANDARDS
3 WHICH HAVE BEEN USED.
4 Q. OKAY. DESCRIBE FOR US THE CHARACTERISTICS OF THE
5 ALLOCATIVE EFFICIENCY MODEL.
6 A. THE ALLOCATIVE EFFICIENCY MODEL --
7 Q. CAN I INTERRUPT YOU FOR A SECOND?
8 MR. SHULMAN: MAY I GO TO THE EASEL, YOUR HONOR?
9 THE COURT: YES, SIR.
10 MR. SHULMAN: THANK YOU.
11 Q. I AM GOING TO WRITE ON THE EASEL YOU IDENTIFIED ALLOCATIVE
12 EFFICIENCY AND THE SECOND IS NUMBER OF COMPETITORS; RIGHT?
13 A. YES, SIR. THE ANTITRUST LAWS DEAL WITH PROMOTING
14 COMPETITION, BUT THERE ARE VARIOUS WAYS IN WHICH COMPETITION
15 HAS BEEN DEFINED.
16 Q. OKAY. LET ME ASK YOU TO EXPLAIN THE CHARACTERISTICS OF
17 THE ALLOCATIVE EFFICIENCY MODEL.
18 A. THIS RESTS ON THE CLASSIC ECONOMIC MODEL WHICH CONCERNS
19 THE OPTIMUM ALLOCATION OF ECONOMIC RESOURCES AND IDENTIFIES
20 COMPETITION WITH ACTIONS TAKEN TO PROMOTE THE OPTIMUM
21 ALLOCATION OF ECONOMIC RESOURCES.
22 Q. AND HOW DOES ONE DETERMINE THAT?
23 A. ONE FOCUSES ON THE PRICES THAT ARE CHARGED IN THE
24 MARKETPLACE AND THE QUANTITIES THAT ARE PRODUCED BECAUSE THE
25 CLASSIC EFFECT OF MONOPOLY IS TO RAISE PRICE BY RESTRICTING 462
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1 OUTPUT, AND RESTRICTIONS ON OUTPUT HAVE UNFORTUNATE
2 IMPLICATIONS FOR ALLOCATIVE EFFICIENCY.
3 Q. AND IN THE ECONOMIC LITERATURE IS ALLOCATIVE EFFICIENCY
4 SOMETHING RELATIVELY NEW, SOMETHING RELATIVELY OLD, OR
5 SOMETHING ELSE?
6 A. THAT IS THE CLASSIC ECONOMIC MODEL WHICH HAS BEEN AROUND
7 FOR A LONG TIME.
8 Q. OKAY. IN TERMS OF THE USE OF ALLOCATIVE EFFICIENCY IN
9 ANTITRUST, IS THAT SOMETHING THAT IS A RELATIVELY RECENT
10 DEVELOPMENT?
11 A. THAT'S A DIFFICULT QUESTION. CERTAINLY IT'S BEEN USED FOR
12 A LONG TIME, BUT IT CERTAINLY BECAME -- CAME TO DOMINATE
13 ANTITRUST ENFORCEMENT WITH WHAT I CALL THE ANTITRUST REVOLUTION
14 OF THE 1980'S.
15 Q. WHAT DO YOU MEAN THE "ANTITRUST REVOLUTION OF THE 1980'S"?
16 A. WELL, STANDARDS FOR ANTITRUST ENFORCEMENT CHANGED WITH THE
17 NEW ADMINISTRATION IN 1981, AND YOU SAW MUCH GREATER FOCUS ON
18 VERY STRICT STANDARDS OF ALLOCATIVE EFFICIENCY.
19 Q. OKAY. NOW LET'S TAKE THE SECOND MODEL YOU'VE DESCRIBED,
20 WHICH IS -- SECOND ECONOMIC MODEL YOU'VE DESCRIBED FOR
21 COMPETITION, WHICH IS NUMBER OF COMPETITORS. CAN YOU DESCRIBE
22 THE CHARACTERISTICS OF THAT MODEL?
23 A. THIS IS A MORE SIMPLE ISSUE WHICH SAYS THAT COMPETITION IS
24 PROMOTED WHEN THERE ARE A LARGER NUMBER OF COMPETITORS SO THAT
25 CONSUMERS HAVE A GREATER CHOICE AMONG THE PRODUCTS OF DIFFERENT 463
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1 SELLERS. IT FOCUSES NOT SO MUCH ON PRICING OR ON QUANTITIES
2 BUT, RATHER, ON THE AVAILABILITY OF ALTERNATIVES IN THE
3 MARKETPLACE, WHICH IS THIS IS, I