A federal judge ruled here yesterday that a new agency distribution system implemented by The Washington Post to replace its former dealer, system is legal and can continue to operate.
However, at the same time, the judge ruled that newspapers who do use a dealer system cannot stop those dealers from charging their custoemrs more for the paper than the amount suggested by the publisher.
The ruling could have a wide-rangeing effect in the newspaper industry, where many papers still use a dealer system.
In a case involving the two systems by which The Washington Post is currently distributed to its customers, U.S. District Judge Gerhard A. Gesell said the paper must pay damages to three of its dealers whom the court ruled were punished financially by The Post for raising the price of the paper to their customers.
The exact amount of damages to those three dealers -- who raised their prices to custoers only to find that The Post raised its prices to them by the same amount and cut out their expected increase in profits - will be determined later. Spokesmen for both sides said the amount probably will be less than $100,000.
In addition, Gesell awarded $9 each in damages to 11 other dealers who legally could have raised their prices as did the other three, but apparently did not when they saw the action taken by The Post against the three dealers who increased their prices.
The controversy that led to the complicated antitrust suit against The Post is based on two different manners in which newspapers can be distributed.
One is the dealer system, in which persons purchase newspapers from a newspaper for resale -- mainly to home subscribers in designated areas. The dealers are responsible for distributing the papers to clients in the area, collecting money from them, and generally servicing those clients as "middle men."
The Post had used the dealer system until 1975, when it announced that it was shifting to an agency system for most of its circulation.
Under the agency system, distribution is handled more directly by the newspaper through agents, who do not get involved in buying and reselling the newspapers as dealers did. The agents are paid under a fee system. The resposibility for delivery and the accountability to the reader for the distribution remains with the newspaper itself.
Gesell pointed out in his lengthy opinion that practically all of The Post's 180 dealers, except for the 14 who filed the suit, accepted the agency system when it was announced by the company.
The ones who brought the suit claimed that The Post should not have instituted the agency system. At the same time they argued that the manner in which The Post had operated the dealer system had violated antitrust laws.
Some of ther dealers declined to change their relationship. They currently distribute about 25,000 copies of the 450,000 copies affected by the distribution system at issue, according to a Post spokesman. Those dealer contracts expire in a few months, the spokesman added.
In his opinion, Gesell said The Post's general prior operation of its [WORD ILLEGIBLE] system did not violate antitrust laws or illegally fix prices, but was instead a proper way for the firm to achieve "legitimate marketing objectives."
He rejected the dealers' arguments that The Post's circulation department was an "exacting and ruthless unit." The judge said the two sides appeared instead to have had a "cordial, mutually beneficial working relationship."
Gesell said there was no past evidence of overall pressure on the part of The Post to force its dealers to charge the prices suggested by the company, but that the dealers appeared to have charged those prices based on factors other than coercion.
In the instances involving the three dealers to whom he awarded damges, however, Gesell said The Post specifically took retaliatory action when the dealers raised their prices.
"That violation was recent, of limited impact, and perhaps little more than a mistake in judgment or legal advice," Gesell said. He ruled that it was "an unlawful contract in restraint of trade."%T"The Post's action was coercive, interfering with plaintiffs' freedom" in those instances, Gesell added. Therefore, the three dealers affected must be paid three times the amount of profit they would have made if The Post had allowed the price increase to remain in effect for them, ther judge said.
In addition, he said the affected dealers could raise their prices again as long as they continue in a dealer relationship with the company.
Wallace Brand, an attorney for the plaintiffs, said he had not yet decided whether he would appeal aspects of the ruling.
Gesell specifically ruled that The Post's agency system was legal and could continue. That finding was praised by a company official as "complete validation" of the new distribution system for the paper.
Christopher Little, vice president and counsel of the Post, said he believed "the landmark ruling upholding the agency system will have long-run benefits for Post subscribers."