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AD CIRCULAR ROW FLARES JUSTICE DEPARTMENT JOINS ADVO IN PHILLY NEWSPAPER CASE

By Published on .

The Department of Justice has waded into the perennial battle between newspapers and direct mail over home delivery of advertising circulars.

The department's antitrust division has asked a federal appeals court to revive a 1993 market monopoly suit against the Philadelphia dailies by direct mail giant Advo Inc.

The ultimate outcome may be pivotal in affecting similar disagreements across the U.S.

In comments filed with the Third U.S. Circuit Court of Appeals, the antitrust division asked for a full hearing by a federal district court of Advo's suit. Advo accused Philadelphia Newspapers, owner of The Philadelphia Inquirer and The Philadelphia Daily News, of trying to monopolize the local market for distributing advertising circulars.

The U.S. District Court in Philadelphia dismissed Advo's original suit in June. Advo appealed, and, in the process, drew the Justice Department to a case that could be crucial in the continuous fight for local ad revenue between direct mail and newspapers.

Advo said several million dollars in local revenue is at stake.

John Sturm, VP at the Newspaper Association of America, said a rehearing could be seminal in determining future tactics. "Advo is being very aggressive in the marketplace ... and in court," he said. "I think it's fair to say that the big questions will turn on the next decision, by the appeals court. How it rules will either encourage or discourage more litigation."

Advo alleged Philadelphia Newspapers, a Knight-Ridder subsidiary, tried to lure customers by "offering free or deeply discounted ROP advertising ... to Advo's principal customers linked with a low and discriminatory rate ... for advertising circulars."

Advo, which entered the Philadelphia market in 1984, contends that Philadelphia Newspapers in 1992 began offering special deals to Advo's key customers-Acme and Super Fresh grocery chains.

"Should Advo lose these base player accounts to PNI as a result of PNI's simultaneous predation and leveraging of monopoly power in its ROP business, it will be driven from the market," the company said in court papers.

Advo and the Justice Department challenge the district court's ruling that entry into the Philadelphia market would not be difficult. "The Justice Department is very big when it comes to cases involving the barriers-to-entry issue," said David Stigler, Advo senior VP-general counsel.

Thus Justice's narrow request for a full hearing of the case, on grounds the district court incorrectly calculated the ease with which a new player might penetrate the Philadelphia ad circular market.

Robert C. Heim, attorney for PNI, questioned the appeal and government agency's involvement. "I think the Justice Department is embarrassed, or should be, because the activity that they are challenging is what I thought they were in favor of-lowered prices," Mr. Heim said. "... Even if what Advo says is true, this business would attract new entrants."

Nick Canistraro, senior VP-chief marketing officer, Newspaper Association of America, said the battle is "one of plain old competition" and a ruling supportive of newspapers' position would help clear up similar disagreements in other markets.

"Many newspapers cross-subsidize their mail portion with their in-paper portion ... This is the way it is. This is life. And the beneficiary of this competition has been the advertiser."

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