The Justice Department's antitrust division yesterday recommended rejection of an application for a joint operating agreement between The Detroit Free Press and The Detroit News.

The recommendation to administrative law judge Morton Needelman said the owners of the two papers, "had not met their burden" under the Newspaper Preservation Act, which requires them to show that one paper would fail without the partial merger allowed under the law designed to prevent the loss of competing newspapers.

The Detroit papers are owned by two of the nation's richest newspaper chains, Gannett Co. Inc. of Rosslyn and Knight Ridder Inc. of Miami. As explained to reporters by Justice Department spokesman Patrick Korten, the antitrust division argued that Knight Ridder's Detroit Free Press was not a failing newspaper.

Although the companies that own the two papers had said their combined losses from 1981 to 1986 were $131 million, the antitrust lawyers argued that the losses were incurred in part because the two papers were engaged in a fight for "dominance" that kept ad revenue low and maintained newspaper prices for consumers at the lowest in any major metropolitan market.

During hearings in August, owners of the papers said that without the JOA, the Free Press would fold.

Alvah H. Chapman Jr., chairman of Knight Ridder, said during the hearings that if the JOA were denied "it would be my recommendation to the Knight-Ridder board that they take steps to close down the Free Press and dispose of its assets."

The final decision on the joint agreement -- the largest ever proposed under the 1970 law -- will be made by Attorney General Edwin Meese III, who is not bound by the antitrust division's recommendation or administrative law judge's decision.

The Detroit application, which would allow a merger of most business operations of the two papers while the two news staffs would continue to compete, has become controversial because it involves two of the nation's largest newspaper chains and would allow them to split any profits 50-50 after the first five years of the 100-year agreement.

Gannett, the nation's largest newspaper chain, bought the Detroit News last year for $717 million. Besides the Free Press, Knight Ridder owns several of the largest and most prestigious papers in the country, including The Miami Herald and The Philadelphia Inquirer.

The antitrust division's brief said the 50-50 profit split proposed by the two chains was "a strong indication that the parties viewed their relative competitive positions as comparable" and that neither paper was failing as defined by the law.

Contacted by United Press International, Chapman said the antitrust division's decision "was not totally unexpected. The antitrust division of the Justice Department has been consistently opposed to the Newspaper Preservation Act of 1970."

Figures as of March show that the News sells 678,399 daily papers compared with 639,729 for the Free Press. On Sunday, the News has a circulation of 839,319, compared with 724,342 for the Free Press.