Verizon Directories Corp. v. Yellow Book Usa, Inc.

338 F.Supp.2d 422

VERIZON DIRECTORIES CORP., Plaintiff, v. YELLOW BOOK USA, INC., Defendant.

No. 04-CV-0251.

United States District Court, E.D. New York.

October 7, 2004.

Schlam Stone & Dolan LLP, New York, NY, by Richard Dolan, Winston & Strawn, Washington, DC, by Dan Webb, Charles Molster, Alan Howard, David Reich, Verizon, Arlington, VA, by John Thorne, John Frantz, For Plaintiff Verizon Directories Corp.

Davis Wright Tremaine LLP, by Victor Kovner, Sharon Schneier, Randy Gainer, Marcia Paul, Carolyn Foley, Matthew Leish, James Rosenfeld, Steve Chung, Samuel Leaf, Willkie, Farr & Gallagher LLP, New York, NY, by Roger Netzer, For Defendant Yellow Book USA, Inc.

FINDINGS OF FACT AND LAW, MEMORANDUM, ORDER, & FINAL JUDGMENT

WEINSTEIN, Senior District Judge.

I. Introduction

Plaintiff Verizon Directories Corp. ("Verizon"), a publisher and distributor of yellow pages telephone directories affiliated with Verizon telephone company, sued Yellow Book U.S.A., Inc. ("Yellow Book"), an independent publisher of such directories. The selling of advertising in United States yellow pages directories constitutes an almost $15 billion industry, with Verizon claiming revenue of more than $4 billion and Yellow Book approaching $1 billion in sales.

The parties have settled the case. It is the court's understanding that both will support appropriate industry-wide fair standards for surveys to determine what the usage is of their respective yellow page directories. They have thus turned this private dispute into a socially useful accord that will permit prospective advertisers in, and users of, yellow page directories to determine the value of these important merchandising tools. The public and the yellow pages directory industry will be well served by use-survey reliability and transparency. In order to understand the significance of the settlement which is now approved by the court some background on the litigation is desirable.

II. Facts and Procedural History

Verizon is a business unit of Verizon Communications Inc., a Fortune 20 company and the largest phone company in the United States. It publishes the Verizon SuperPages with more than 111 million copies circulated in thirty-four states and the District of Columbia.

Yellow Book is part of Yell Group Plc, a publicly-traded company headquartered in England that is a leading distributer of white and yellow pages directories in the United Kingdom. In the United States Yellow Book is the largest independent directory publisher not affiliated with the local company providing wire telephone services. Seventy-one million copies of its yellow pages directories circulate in forty-one states and the District of Columbia.

Verizon and Yellow Book compete as the two principal yellow pages directory publishers in approximately 120 local markets, most of which Verizon occupies as the incumbent telephone company. Among the most significant of these markets are: Boston; Manhattan; Nassau County, New York; Philadelphia; Pittsburgh; Baltimore; Washington, D.C.; Northern Virginia; and Tampa.

In January 2004, Verizon filed an action against Yellow Book asserting claims for: (1) false representations in sales and marketing communications and false advertising under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (2) unfair competition and false advertising under sections 349 and 350 of the New York General Business Law; and (3) product disparagement under New York common law.

Verizon claimed that through television commercials and other advertising, as well as an integrated sales program, Yellow Book communicated to consumers and advertisers the false claim that Yellow Book's directory is used more than Verizon's book, the "SuperPages," in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and sections 349 and 350 of the New York General Business Law.

Plaintiff moved for a preliminary and final injunction enjoining Yellow Book from engaging in marketing communications making representations to the effect that more people use Yellow Book than the Verizon SuperPages. Yellow Book opposed the application for injunctive relief and cross-moved to dismiss on the ground that its television commercials and other advertising constituted non-actionable puffery.

In February 2004 Verizon's motion for a preliminary injunction was denied. Yellow Book's motion to dismiss was denied in March 2004 except that the product disparagement claim was dismissed for failure to allege specific damages. The parties agreed to a bench trial beginning in July 2004 on the issues of liability and injunctive relief.

Pursuant to expedited schedules imposed by the magistrate judge, the parties conducted extensive discovery. They took some seventy-five depositions and exchanged millions of pages of documents.

Trial on the liability and injunctive phases was held from July 26 to August 18, 2004. The parties presented extensive documentary and testimonial evidence, including expert testimony. See, e.g., Verizon Directories Corp. v. Yellow Book USA, Inc., 331 F.Supp.2d 136 (E.D.N.Y.2004); Verizon Directories Corp. v. Yellow Book USA, Inc., 331 F.Supp.2d 134 (E.D.N.Y.2004).

Verizon established that 1) Yellow Book made false statements of fact claiming greater use of its yellow pages directories as compared to Verizon's SuperPages, 2) some consumers may have believed these Yellow Book claims, and 3) Verizon may have been damaged by them.

An injunction is not required. A jury trial to assess damages was to begin on December 13, 2004; it is no longer necessary.

III. The Industry

A. History of Telephone Directory Publishing

The yellow pages telephone directory was developed by Reuben H. Donnelley, the son of the founder of the R.R. Donnelley printing company. He produced in Chicago in 1886 the first yellow pages directory featuring business names and phone numbers categorized by the types of products and services. Eventually that book became the Illinois Bell Yellow Pages.

Prior to divestiture in 1984, telephone directory publishing was almost wholly the domain of the incumbent telephone companies — AT & T (the Bell system) and its wholly owned subsidiaries, the Bell Operating Companies ("BOCs"). Telephone directories generally consisted of a single volume containing white pages with alphabetical listings and yellow pages with classified listings and advertisements. Publication was usually carried out as part of the telephone company's regulated operation — that is, the costs and revenues associated with telephone directory business were included in calculating regulated telephone service rates. In spite of the AT & T monopoly several small independent directory publishers — those not affiliated with an incumbent telephone company — managed to survive by offering specialized directories that did not compete head-to-head with those published by the BOCs.

A consent decree that led to the breakup of AT & T was entered in 1982 and became effective in 1984. See United States v. AT & T Co., 552 F.Supp. 131 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). It allowed the BOCs to retain their directory publishing operations.

Originally there were seven newly-divested Regional Bell Operating Companies ("RBOCs"). After a series of mergers, the original seven have become BellSouth, Quest Dex, SBC, and Verizon. The RBOCs generally did not continue to operate their directory publishing businesses as part of their regulated telephone operations, but instead created separate publishing subsidiaries. These RBOC-affiliated directory publishers continued to dominate the industry. One reason for this was that the RBOCs did not make access to directory listings available to independent publishers on terms consistent with those on which they were made available to their own publishing affiliates. A series of legal challenges to this practice helped to even the playing field for independent publishers. See, e.g., Feist Publ. Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 363, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991) (holding that names, towns and telephone numbers of utility's subscribers are not entitled to copyright protection); Great Western Directories, Inc. v. Southwestern Bell Tel. Co., 63 F.3d 1378, 1386-87 (5th Cir.1995) (holding that price increases for subscriber listing information by Southwestern Bell violated antitrust laws), superseded in part, 74 F.3d 613 (5th Cir.1996).

The Telecommunications Act of 1996, codified at 47 U.S.C. § 151 et seq, was designed "to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans...." H.R. Conf. Rep. No. 104-458, at 113 (1996), reprinted in U.S.C.C.A.N. 124. With its passage independent publishers were guaranteed access to telephone subscriber listings on reasonable and nondiscriminatory terms. 47 U.S.C. § 222(e).

B. The Yellow Pages Industry Today

Until relatively recently, virtually all major telephone directories consisted of a single volume containing white page alphabetical listings and yellow page classified listings and advertisements. As directories became more voluminous it became necessary to publish separate volumes, especially for larger metropolitan areas. Today some publishers publish only a yellow page directory, while others publish both a white page and a yellow page directory.

Telephone directories are generally distributed at no cost to homes and offices on an annual basis. "Primary distribution" is made by hand delivery so that every residence and business within the intended scope of the directory receives a copy. Many publishers-including both parties to the present action-also make a "secondary distribution" to new residents and business.

Much like broadcast television and newspapers, publishers do not make their money...