U.S. Supreme Court CITIZEN PUBLISHING CO. v. U.S., 394 U.S. 131 (1969) 394 U.S. 131

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equipment of each paper was transferred to TNI. The latter had five directors - two named by the Star, two by the Citizen, and the fifth chosen by the Citizen out of three named by the Star.

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

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

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

The case went to trial on the 2 charge and also on a charge brought under 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. 18.[Footnote 1] The latter charge

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. The joint operating agreement exposed the restraints so clearly and unambiguously as to justify the rather rare use of a summary judgment in the antitrust field. See Northern Pac. R. Co. v. United States, 356 U.S. 1, 5.

The only real defense of appellants was the "failing company" defense - a judicially created doctrine.[Footnote 2] The facts tendered were excluded on the 1 charge but were admitted on the 2 charge as well as on the 7 charge under the Clayton Act. So whether or not the District Court was correct in excluding the evidence under the 1 charge, it is now before us; and a consideration of it makes plain that the requirements of the failing company doctrine were not met. That defense was before the Court in International Shoe Co. v. FTC, , where 7 of the Clayton Act was in issue.[Footnote 3] The

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with the Citizen? Would that be true if as now claimed the Citizen was on the brink of collapse?

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

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

The burden of proving that the conditions of the failing company doctrine[Footnote 4] have been satisfied is on those

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of information from diverse and antagonistic sources is essential to the welfare of the public, that a free press is a condition of a free society. Surely a command that the government itself shall not impede the free flow of ideas does not afford non-governmental combinations a refuge if they impose restraints upon that constitutionally guaranteed freedom. Freedom to publish means freedom for all and not for some. Freedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not. Freedom of the press from governmental interference under the First Amendment does not sanction repression of that freedom by private interests. The First Amendment affords not the slightest support for the contention that a combination to restrain trade in news and views has any constitutional immunity." 326 U.S., at 20.

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

Affirmed.

MR. JUSTICE FORTAS took no part in the consideration or decision of this case.

FootnotesFootnote 1 Section 7 provides in part:

"[N]o corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share

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capital . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

Footnote 2 See Bok, Section 7 of the Clayton Act and the Merging of Law and Economics, 74 Harv. L. Rev. 226, 339 (1960); Hale & Hale, Failing Firms and the Merger Provisions of the Antitrust Laws, 52 Ky. L. J. 597, 607 (1964); Connor, Section 7 of the Clayton Act: The "Failing Company" Myth, 49 Geo. L. J. 84, 96 (1960).

The failing company doctrine was held to justify mergers in United States v. Maryland & Virginia Milk Producers Assn., 167 F. Supp. 799, aff'd, , and in Union Leader Corp. v. Newspapers of New England, 284 F.2d 582.

For cases where the failing company doctrine was not allowed as a defense see United States v. Diebold, Inc., 369 U.S. 654; United States v. El Paso Gas Co., 376 U.S. 651; United States v. Von's Grocery Co., 384 U.S. 270; United States v. Philadelphia National Bank, 374 U.S. 321, 372, n. 46; United States v. Third National Bank, .

Footnote 3 It should be noted that at the time the International Shoe Co. case was decided 7 of the Clayton Act provided: "[N]o corporation . . . shall acquire . . . stock or other share capital of another corporation . . . where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition . . . ." (Emphasis supplied.) Consequently, where the acquired company was "such as to necessitate liquidation," and where "the prospect for

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The District Judge did not resolve the central factual issue against the appellants. He made no finding that the company was salable. Indeed, the judge refused even to consider the appellants' evidence in connection with the issues under 1 of the Sherman Act. With respect to the 1 count, he excluded the evidence altogether on the erroneous ground that the failing company defense was wholly unavailable to participants in the kind of joint operating agreement involved in this case. And while he admitted the evidence at trial on the other counts, he explicitly limited its relevance to the question of the bona fides of the Star owner's belief that his company was not monopolizing the market. In view of these rulings and the absence of any pertinent findings, it is clear that the appellants have not had their day in court on the critical issue in this case.

The District Court did find that

"at the time the agreement became effective, Citizen Publishing was not then on the verge of going out of business, nor was there a serious probability at that time that Citizen Publishing would terminate its business and liquidate its assets unless Star Publishing and Citizen Publishing entered into the operating agreement." 280 F. Supp. 978, 980.

I do not believe this finding supports the conclusion that Citizen was not a failing company, or even that the District Court thought it was not a failing company. Every other material finding of the District Court was to the effect that Citizen was dying.[Footnote 5] The only subsidiary finding consistent with the conclusion that Citizen was not then on the verge of immediate demise was that Small, by his own admission, was "prepared to

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finance the losses of Citizen Publishing for some little time thereafter from resources available to him other than the earnings or assets of Citizen Publishing." Id., at 980.

As stated above, the District Judge mistakenly thought that the failing company defense was unavailable in a case like this under 1 of the Sherman Act. But he made clear his view that, if the failing company defense had been available - as in a total merger, for example - that defense would have prevailed:

"Mr. MACLAURY: Well, would Your Honor then think if they had dissolved Star or Citizen or both and simply merged them all into one company, then the failing company doctrine would apply?

. . . . .

"The COURT: I think if Star acquired all of Citizen's assets and gave stock to the owners of Citizen, it probably would. I would say that the Government wouldn't have much chance in this particular case of attacking that acquisition." (Emphasis supplied.)

Because the question whether Citizen was a failing company has not yet been properly determined, I would vacate the judgment and remand the case to the District Court, so that this dispositive question may be fully canvassed.

[Footnote 1] International Shoe Co. v. FTC, 280 U.S. 291; United States v. Diebold, Inc., 369 U.S. 654. Cf. United States v. Third National Bank, 390 U.S. 171, 190-192.

[Footnote 2] Small worked as publisher of the paper without a salary. Yet as of December 31, 1939, Citizen Publishing owed approximately $79,000 to its stockholders for advances of working capital; it had current liabilities of over $47,000, as opposed to current assets of $16,525 in accounts receivable, $420 in bank deposits, and $66 cash on hand. Its liabilities exceeded its assets, exclusive of goodwill, by some $53,400.

[Footnote 3] "The period 1937 through 1943 constituted the most dismal era in 20th century newspaper history; more than half of the net decrease of daily newspapers since 1909 occurred during those seven years." Ray, Economic Forces as Factors in Daily Newspaper Concentration, 29 Journalism Quarterly 31, 34 (1952).

[Footnote 4] Newspaper brokers and publishers who testified that they were intimately familiar with the newspaper industry and aware of the situations of the Citizen and the Star, gave their opinions that there was no market for the Citizen unless it could somehow be joined with the Star. E. g.:

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