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Redplum v SmartSource

Can’t we all just get along? The RedPlum and SmartSource coupon inserts may peacefully coexist within the friendly confines of your Sunday newspaper, but their publishers are anything but cordial competitors. Valassis, which publishes RedPlum, has just filed a federal lawsuit against SmartSource publisher News America Marketing – for $2.24 billion.

That’s a lot of money, over little cents-off coupons.

In its complaint, filed in a Michigan federal court on Friday, Valassis accuses News America of monopolizing the in-store coupon and advertising business, and using that alleged monopoly to strong-arm clients into offering coupons in the SmartSource Sunday inserts instead of in RedPlum.

This will hardly be the first time the two companies have faced off in court, over these very issues. The lawsuit actually stems from an earlier series of cases, which Valassis and News America eventually settled in 2010 for $500 million.

Valassis now claims that News America has not learned anything, nor changed its tactics, after making that big payout. “Instead of changing its illegal practices, News has utilized unethical, unfair, and anticompetitive strategies to prevent Valassis from gaining a foothold in the market for in-store advertising and promotions,” the lawsuit reads.

It’s the in-store coupons and advertisements that form the basis of the complaint. When was the last time you saw a blinkie machine with RedPlum coupons inside? Or a shopping cart, shelf or floor ad provided by Valassis? SmartSource is all over the typical supermarket, and Valassis says News America is using its virtual monopoly as leverage, to get companies to buy coupon insert space with it as well.

Valassis complains that News America uses long-term contracts and “bundling” discounts, to force companies into doing all of their insert and in-store business with SmartSource. Clients of SmartSource’s in-store services that instead buy coupon insert space from Valassis, have their bundling discounts revoked, Valassis alleges. “News’ pricing practices are penalties used by News to punish CPGs (consumer packaged goods companies) for contracting with Valassis,” the complaint argues. Furthermore, Valassis claims, when it has actually won in-store contracts, News America has refused to remove its advertising material from stores, and in some cases has even removed Valassis’ material and replaced it with its own.

How does this affect what you see in your Sunday paper? Until about a dozen years ago, the lawsuit notes that Valassis and News America each had roughly 50% of the coupon insert business. Today, that number is more like 65-35%, in News America’s favor. And not only is the balance off, Valassis claims, News America’s increasing monopoly ultimately reduces the total number of coupons available to shoppers. “News reduces consumer choices by reducing the output of… coupons and advertising to consumers,” the complaint alleges. “Because fewer coupons are available to consumers, they cannot purchase… products at lower prices, which results in consumers paying higher prices than would exist in a competitive market.”

News America has not yet offered a formal response to the lawsuit in court, and a spokesperson declined to comment on the matter to Coupons in the News. But back in 2006, when Valassis filed its initial, similar complaint, News America suggested the lawsuit was less about unfair competition, and more about sour grapes. “Valassis’ complaint is nothing more than an improper attempt by an inferior competitor to use the antitrust laws to shield it from competition,” News America’s motion to dismiss the 2006 lawsuit read. “Instead of redoubling its efforts to compete on the merits, Valassis filed this lawsuit to prevent the News America Companies from continuing to offer superior low-priced marketing packages to CPGs.”

Not only is this not the first time Valassis has sued over these very issues, but some of News America’s own advertisers have made similar claims in their own lawsuit. In a separate case currently pending in a New York federal court, CPG companies including Heinz and Dial accuse News America of “monopoly overcharging.” News America has countersued for breach of contract, accusing Heinz in particular of offering coupons in RedPlum inserts, in violation of an agreement that gives News America the right of first refusal for any coupon offer the company might want to make.

It’s those very tactics that Valassis objects to. It says News America has even threatened to sue Valassis, just for entertaining requests for proposals from clients that currently advertise with SmartSource.

In all, Valassis is seeking actual damages of $560 million, plus an additional amount equal to three times its actual damages, as well as costs, attorney fees and interest, for a total of more than $2.24 billion. That’s well over 100 times the actual profits Valassis enjoyed from its coupon insert business last year.

“When battling a Goliath, sometimes a single stone is not enough,” Valassis’ lawsuit reads. “In the case of one true corporate Goliath – the News conglomerate – not even a unanimous jury verdict, a $500 million payment, and a federal court order enjoining improper bundling and tying were enough to change its business practices.”

And you thought some coupon users could be competitive and cutthroat. It seems they’ve got nothing on the coupon providers themselves.

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