Murdoch's marketing firm takes another legal hit

News America, assailed for bully tactics, gets tagged with a $300 million verdict.

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By Jennifer Reingold, senior writer

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NEW YORK (Fortune) -- The legal setbacks just keep coming for News America Marketing, the $1 billion unit of Rupert Murdoch's News Corp. that does supermarket in-store promotions and produces newspaper circulars. After settling for an undisclosed amount with competitor Floorgraphics in March, the company yesterday was ordered by a Michigan court to pay competitor Valassis Communications $300 million in compensatory damages.

A jury found the company guilty of interference and unfair competition; it was the second case relating to unfair business practices that the company has lost, and may not bode well for its chances in a similar case filed by Insignia Systems (ISIG), another rival. Virtually all of News America's remaining competitors have filed some form of legal challenge to the company's business practices.

Although Valassis (VCI) had asked for $1.5 billion and had essentially gambled the company's future on the outcome, spending millions on legal fees, CEO Alan Shultz claimed to be satisfied with the results. "I am very proud of the efforts of our employees, who have been competing on this uneven playing field for nearly a decade," he said in a press release. News America CEO Chris Mixson offered the opposite take in a statement. "We are disappointed with today's decision, which rewards a company that turned to litigation as its business strategy rather than compete." He vowed to appeal.

Although it may take years for such an appeal to wend its way through the judicial system, News America is officially on the hot spot. After settling with Floorgraphics, losing an appeal against Theme Promotions, and facing two more suits from Valassis as well as the Insignia case, the company's methods of doing business have been severely put into question. The Valassis trial reportedly featured testimony from News America executives admitting that they charged higher prices to companies like Unilever (UL) and Kraft (KFT, Fortune 500) if they refused to bundle their coupon and in-store business only with News America.

Moreover, the in-store promotions business has lately been evolving into a model in which the large consumer-product companies have more clout than the middlemen such as News America and Valassis. All of which suggests that it may be time for News Corp. (NWSA) CEO Murdoch to take a break from the woes of his media businesses and focus his efforts a bit more on a business unit whose tactics appear to be costing the company a lot more than it has gained -- both in reputation and in cold, hard cash. To top of page

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