Gemstar Agrees to Penalty in Antitrust Case

Gemstar-TV Guide International Inc. agreed to pay a record $5.67-million penalty to settle antitrust allegations by the Justice Department.

Justice charged that the Pasadena-based company, together with TV Guide Inc., fixed prices and divided up their markets before the two officially merged in July 2000.

Gemstar-TV Guide, which is now controlled by media giant News Corp., said in a statement that it admitted to no wrongdoing.

Under U.S. antitrust laws, merger partners must operate independently until their deal is consummated and cleared by federal regulators. Coordinating operations beforehand is a violation known as “gun-jumping.”

The penalty against Gemstar is the largest allowable in this case under the law.

“A plan to merge in the future does not justify price fixing, customer allocation or otherwise combining their businesses, while the Justice Department is investigating the competitive effects of the transaction,” R. Hewitt Pate, acting head of the Justice Department’s antitrust division, said in a statement released Thursday.

The investigation began shortly after the Justice Department approved the $14-billion merger of Gemstar International Group Ltd. and TV Guide Inc. Gemstar was facing the threat of a Justice Department lawsuit.

Analysts said the news was ultimately positive.

“There’s one less problem,” said John Tinker, an analyst who follows the company for Blaylock and Partners. “They are dealing with it and moving on. The bigger question is the SEC investigation.”

Gemstar, which publishes TV Guide and sells on-screen television program guides, remains under investigation by the Securities and Exchange Commission for its accounting practices and has lost more than 80% of its stock value this year, forcing News Corp. to write down about $6 billion of its investment in the company. The company faces a March 31 deadline for restating more than three years of earnings.

The settlement is the latest effort by Gemstar’s new management to move beyond mistakes of the past.

Amid Gemstar’s widening financial problems last year, News Corp. wrested control of the company after a power struggle with founder Henry Yuen and installed one of its top executives, Jeff Shell, to replace Yuen as chief executive.

Shell has appointed a new publisher and editor at TV Guide magazine and has tried to smooth relations with cable operators that license the company’s on-screen guide.

Yet questions remain about the company’s ability to continue to dominate the electronic-guide market because of court decisions that over the last year have weakened several of the company’s patents.

As part of Thursday’s settlement, Gemstar-TV Guide agreed to allow customers who signed contracts with the company during the merger review to rescind the agreements, the Justice Department said.

Only a few customers were signed during this period, and none have indicated a desire to abandon their agreements, sources close to the company said.

Gemstar-TV Guide shares rose 10 cents to $3.04 on Nasdaq.