The High-Stakes World of School Yearbooks
A federal judge has thrown out a $25 million court judgment against Jostens Inc., the market leader in the $500-million-a-year yearbook-publishing industry.
A federal jury in Sherman, Texas, had ruled last year in favor of Taylor Publishing Co., a rival yearbook publisher that had accused Jostens in an antitrust lawsuit of trying to monopolize the market.
The jury found that Jostens engaged in sham and predatory pricing, raided Taylor's sales force, and interfered with its contracts. The jury awarded Taylor $8 million in damages, which under antitrust law was trebled to $24 million. Jostens was also to have paid Taylor's legal fees, totaling more than $1 million.
But on Jan. 14, U.S. District Judge Paul N. Brown of Sherman granted Jostens' motion to set aside the jury verdict and the damage award.
The judge ruled that as a legal matter, there was not enough evidence to prove that Jostens was out to monopolize the school yearbook market.
A central charge in the lawsuit was that Jostens used "sham pricing" to win customers. The company would quote one price to win a contract with a school, but the finished product would end up costing more, the lawsuit said.
Judge Brown ruled that such a practice might amount to fraud or misrepresentation, but that Taylor "failed to prove that defendant's actions constituted predatory, anticompetitive conduct."
Nevertheless, the lawsuit shed light on what appears to be cutthroat competition in the business of publishing school yearbooks. Taylor alleged that in addition to setting sham prices in its initial contracts, Jostens used predatory pricing, raided Taylor's sales force, acquired its trade secrets, and on occasion disparaged its products when making sales pitches to teachers.
Judge Brown's opinion referred to a legal brief filed by Jostens that defended the practice of charging customers more for finished yearbooks. The company calls the practice "upgrading," and it involves selling yearbook advisers and students on additional features that boost the final price.
Jostens "argues that upgrading is an ordinary and integral part of the yearbook business that allows yearbook companies to sell additional features to customers and, therefore, does not constitute predatory conduct," Judge Brown wrote.
Taylor, a unit of the Columbus, Ohio-based Insilco Holding Co., had fiscal 1997 sales of $98.2 million.
Jostens, based in Minneapolis, had 1997 sales of $632 million in its school-products division. About 37 percent, or $234 million, of that came from yearbook publishing, according to the company's annual report. Jostens also sells class rings, graduation and prom products, and business-recognition products.
Judge Brown said Taylor's predatory-pricing allegations failed to pass muster because over three years, Jostens undercut Taylor in just 66 instances out of some 7,000 schools served by Taylor.
"This evidence amounts to a customer loss of less than 1 percent of plaintiff's annual sales," the judge wrote. "The court finds that with an impact of less than 1 percent, defendant's below-cost pricing was not capable ... of driving its competitors from the market."
Similarly, the judge said the allegations that Jostens raided Taylor's sales force did not amount to conduct that could lead to a monopoly.
Jostens hired away only three of Taylor's representatives, which "had a negligible impact upon plaintiff's competitive position," the judge said.
Ken Koch, the general counsel for Insilco, said the company would appeal the ruling.
"We obviously think the judge's decision was erroneous," he said. "He rejected the jury verdict on factual determinations that Jostens has engaged in predatory conduct."
Kevin Whalen, a spokesman for Jostens, said many of the allegations centered on actions of its independent sales representatives.
"Were people doing some weird things out there in the past? Yes," he said. "But we are policing our practices more aggressively. By and large, our reps' hearts are in the right place."
Vol. 18, Issue 21, Page 9