Judge Rules for Paper Agreement in Seattle

This city for now will continue to be a two-newspaper town.

A Superior Court judge ruled Thursday that the Seattle Times could not use financial losses in 2000, brought on by a 49-day strike, to dissolve its business relationship with its cross-town rival, the Seattle Post-Intelligencer.

Under a federal agreement that exempts the newspapers from antitrust laws, the Times handles all business functions -- including circulation, advertising and printing -- for the Post-Intelligencer, known locally as the P-I. The papers maintain separate newsrooms.

The joint operating agreement has an escape clause that allows either paper to end the relationship if one party posts financial losses for three straight years. The Times claimed losses in 2000, 2001 and 2002. Dissolving the agreement would likely mean the demise of the smaller P-I.

Hearst Corp., which owns the Post-Intelligencer, sued the Times in April in a pre-emptive move to block the Times from dissolving the agreement. The Times invoked the escape clause the day after the suit was filed, arguing that Seattle could not sustain two major daily newspapers.

Thursday’s ruling settled only one aspect of the suit, the applicability of the losses in 2000.

Superior Court Judge Greg Canova’s decision brought cheers from both the Post-Intelligencer and a citizens group called the Committee for a Two-Newspaper Town but jeers from Times’ representatives, who said that Hearst’s ultimate goal was to buy the Times, one of the nation’s last independently owned papers. The Blethen family, which founded the Times 107 years ago, owns a majority share of the paper.

“Being trapped in the JOA threatens the survival of this independently owned newspaper,” said Times spokeswoman Kerry Coughlin. “An independently owned paper is a rare thing, a valuable thing, and people don’t realize it until it’s gone.”

Guy Michelson, a lawyer for the Post-Intelligencer, called the ruling “a big victory.”

Anne Bremner, a lawyer and a leader of the citizens group, was more cautious, saying she was pleased with the decision but that the battle was not over. She said “we’ll have to see” how the Times responds.

Hearst, using what is called a force majeure -- or greater force -- clause in the agreement, argued that the Times’ loss in 2000 resulted from a one-time event, a Newspaper Guild strike, and therefore should not be counted. Force majeure limits exposure in cases where an unforeseen event causes the loss

Coughlin, immediately after the ruling, suggested one possible option for the Times might be to move the start of the three-year period from 2000 to 2001.

“It’s looking at this point that we will have losses again in 2003,” she said. That means the Times could exercise the escape clause by posting losses in 2001 through 2003, but it would mean a delay at least into early 2004, because it would require compiling financial data for this year.

The operating agreement began in 1983. It granted the Post-Intelligencer a monopoly on morning publication and relegated the Times to the afternoon. Seattle was one of the few markets where the afternoon paper was the more profitable.

The agreement was modified in 1999, allowing the Times to publish in the morning in exchange for increasing Hearst’s share of the papers’ joint profits from 32% to 40%. The amendment also introduced a provision giving Hearst 32% of the Times’ profits through 2083 even if the Post-Intelligencer closes.

The concept of joint operating agreements was created by Congress to help prop up ailing second papers in major markets. Fueling it was the notion that competition between rival newspapers in the same market would encourage diverse viewpoints.

There have been more than 25 such agreements since 1970. Besides Seattle, papers in only 11 other cities still operate under them, including Charlotte, N.C., Cincinnati and Denver. In the 1990s, agreements in nine cities folded, among them Miami, El Paso and St. Louis. A number of the cities where they have failed now only have one daily newspaper.

The Post-Intelligencer has accused the Times of deliberately subverting the Post-Intelligencer’s circulation, which has fallen 18% in the last three years, from 191,000 to 158,000. The Times’ circulation has grown during the same period from 220,000 to 224,000

Times’ Publisher Frank Blethen has charged that Hearst Corp.’s goal is to bleed his paper as a way of pressuring the family to sell. The Blethens own 50.5% of the Times; the other 49.5% is owned by Knight Ridder, which has made several offers to buy the paper over the years. Under a separate agreement between the companies, Hearst would be first in line to buy the Times if it’s ever put up for sale.