Q&A: After ruling for Hearst, what's next in newspaper fight

When a judge ruled Thursday that The Seattle Times cannot use financial losses in 2000 to initiate negotiations that could lead to a shutdown of the rival Post-Intelligencer, a rash of headlines proclaimed Seattle would remain a two-newspaper town.

Perhaps. But King County Superior Court Greg Canova's ruling leaves a lot of loose ends flapping in its wake and just about everyone connected with the city's newspaper fracas believes the fight is far from done.

Here are some of the questions and issues that remain.

Q: Exactly what did Judge Canova rule last week?

A: The judge, ruling in a lawsuit brought in April by The Hearst Corp., decided that the "force majeure" provision in the joint-operating agreement (JOA) between The Times and Hearst's P-I does apply to financial losses in 2000 because those results came from a 49-day strike against The Times.

Force majeure, or "greater force," is a boilerplate provision in many contracts exempting actions caused by extraordinary events outside a party's control.

In making his ruling, Canova stopped The Times from invoking the contract's "stop-loss" clause, which allows either party, after three consecutive years of losses, to force negotiations that could result in closing one paper — in this case, the P-I — within 18 months. If no agreement is reached, the JOA would dissolve. Technically, the judge did not stop that 18-month clock — in this case, the end of October 2004. It would stop if The Times withdraws the official notice to Hearst it made in April that it had three years of losses.

Q: Just what is a JOA?

A: It is a federally sanctioned agreement that allows two newspapers to collaborate on operations such as production, distribution and marketing while publishing separately, giving them protection from antitrust laws.

Congress set up newspaper JOAs by passing the Newspaper Preservation Act of 1970 to help retain two newspaper voices in cities where one paper was in financial trouble and facing a possible shutdown.

Of the 25 JOAs approved by the Department of Justice, a dozen remain in operation. Seattle's JOA, which began operating in 1983, has often been called the most successful.

In Seattle, both papers pool their advertising and circulation revenue. After The Times is paid for printing, distributing and marketing both papers, the remainder is divided, with 60 percent going to The Times and 40 percent to the P-I. Each paper determines its JOA profit or loss by subtracting its news and editorial expenses from its share of the remainder.

Q: Did Judge Canova save the P-I?

A: He kept things at status quo for at least 30 days. That's the amount of time The Times has to appeal his decision.

Q: Will The Times appeal?

A: The company hasn't said what it will do. In a memo to Times employees after last week's ruling, Times President Carolyn Kelly said the company plans to examine its options, "including whether to file an appeal or take other legal action."

Q: What could those actions be?

A: It's unclear, but Times Publisher Frank Blethen, in a July letter to Hearst Chief Executive Victor Ganzi, raised the possibility The Times might take its own legal action.

In the letter, Blethen charged that Hearst's effort to stop the clock on the 18-month negotiating period during its lawsuit, as well as its failure to oppose intervention in the suit by an ad hoc citizens group, the Committee for a Two-Newspaper Town, constituted a "material breach" of the terms of the JOA.

Blethen warned that The Times might take court action, including moving to terminate the JOA based on the alleged breach of the JOA.

"That's still out there," said Times spokeswoman Kerry Coughlin. "We won't know until we sit down with our attorneys and decide what to do."

Q: What would be the Times' prospects of winning an appeal?

A: Experts say "partial summary judgments," the term for the kind of ruling Canova made, are more vulnerable to reversal than decisions based on a full trial, because such judgments are based on the judge's interpretation of facts alone.

To win an appeal, The Times must show there are additional facts in the case that challenge those cited by Canova.

It would be up to a three-judge State Court of Appeals to decide which set of facts should prevail.

Q: What's next for Hearst?

A: Hearst's attorneys say they plan to ask Canova this week to extend his exemption of The Times' 2000 loss to 2001 as well.

Times documents show that the company's losses from the strike, which took place in late 2000 and early 2001, reached $19 million. That exceeded The Times' JOA loss claim of $2.1 million in 2000 and $5.1 million in 2001.

In a statement released Friday, Hearst said that because The Times' own documents show its strike-related costs exceeded its JOA loss for the two years, it would move to apply the force majeure provision to 2001, too.

Hearst also said it intends "to pursue our claims with respect to 2002." The New York-based company contends The Times' JOA loss of $2.7 million for that year came because it overspent on staffing and content to show a loss.

Q: If Hearst is trying to save the P-I in court, why is it also trying to sell the paper?

A: Hearst said it has to put the P-I up for sale to meet antitrust requirements in case it has to close the paper.

If the 18-month negotiating period ends with no shutdown agreement, the JOA ends and the P-I is on its own. Hearst says the paper can't operate outside the JOA because it has no presses, trucks or staff to handle other non-news functions for the P-I.

With few P-I assets other than a rented newsroom, the famous rotating rooftop globe and 155 staff members, Hearst doesn't have much to sell. A newspaper executive who has seen the offering prospectus says he doesn't expect any buyers to come forward.

On the other hand, Hearst attorney Guy Michelson said after Canova's ruling that Hearst may now pull the P-I off the market. The matter, he said, hasn't been decided.

Q: What about the Department of Justice? Isn't it investigating all this?

A: On Friday, a Justice Department spokesman would say only that the investigation, which began in June, is "ongoing."

Investigators have queried just about anyone remotely connected with the JOA dispute, from a Seattle Weekly columnist to Frank Blethen. According to reports, the investigators seem to be interested in whether the JOA here has violated antitrust rules and whether it has worked.

In any event, the calls have tapered off and the probe seems to have pretty much run its course for now.

Q: What action could the Justice Department take?

A: A former director of the Justice Department unit that oversees JOAs, speaking on background, said it isn't likely federal officials would step in to the Hearst lawsuit. "It's an accounting issue," she said.

To get involved, the attorney said, federal investigators would have to show that shutting one paper would create competitive harm. "That's hard to do," she said, "since the papers aren't competing economically now."

Q: What happened to the claim by the Committee for a Two-Newspaper Town that a 1999 revision of the JOA was anti-competitive and unconstitutional?

A: Committee officials say they were delighted by Canova's ruling, especially the judge's reference to the preamble of the JOA, which says continued publication of two papers is "of paramount importance to the citizens of Seattle and its environs."

The committee, which represents more than 200 individuals and a dozen organizations in the Seattle area, draws much of its financial and legal support from the Pacific Northwest Newspaper Guild, a union representing employees at both papers. In July, Canova granted the group intervener status in the Hearst lawsuit.

The committee, among other things, focused on a provision in the 1999 revision that said if Hearst voluntarily closed the P-I, it would receive 32 percent of The Times' profit, after news and non-news expenses, until 2083. That constitutes a restraint of trade and a violation of the constitution, the committee said.

But Canova set aside the argument to "another day."

Dmitri Iglitzin, the committee's attorney, said that day hasn't come — and may not come. If The Times chooses not to appeal Canova's decision, he said, "We could declare victory, move back to the sidelines, and wait to see what happens."

If The Times does appeal, "the fight is still alive and we need to move ahead and get a decision on the restraint-of-trade issue," he said.

For now, he said, "we haven't even begun to decide."

Bill Richards is a freelance writer hired on a special contract by The Seattle Times to cover events involving the joint operating agreement with the Seattle Post-Intelligencer. He can be reached at brichards@seattletimes.com