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Challenge to merger of Seattle papers could affect other cities

The US Justice Department is battling a Seattle federal district court judge over a ruling on the joint operation of the city's two daily newspapers.

On Aug. 27, Judge Barbara Rothstein declared illegal the planned joint operating arrangement between the Seattle Times and the Post Intelligencer. She set an historic precedent: This is the first time such a joint arrangement (called JOA in the news trade), sanctioned by the US attorney general under the controversial Newspaper Preservation Act, has been overturned.

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Already, the newspapers have moved to appeal the decision, which could discourage other such arrangements around the nation. But even if they win a reversal in the Court of Appeals in San Francisco, the publishers will not be out of the woods. Their case would likely continue to the US Supreme Court for a final showdown on the propriety of granting immunity from antitrust law to newspapers that claim to be failing. On Sept. 21, the Justice Department asked the San Francisco court to overturn Judge Rothstein's decision.

Meanwhile, another JOA case with national implications hangs in the balance. Last month, the three-year-long lawsuit by the city and county of Honolulu to overturn a 20-year-old JOA between that city's two dailies ended in a mistrial. The Honolulu Bulletin and Star-Advertiser have moved for summary dismissal of the suit. Attorneys for the city have indicated they would bring the case to a second trial, but have so far made no filing.

The Seattle papers in January 1981 became the 25th pair nationwide to seek a joint operating arrangement. Under such an arrangement, two papers merge their printing, advertising, circulation, and other business functions, while maintaining separate ownership and news and editorial departments. They sell ads at joint discounts to induce advertisers to buy space in both papers, and split profits by a contractual formula. In 1969 the US Supreme Court ruled that such price-fixing and profit-splitting in a JOA in Tucson, Ariz., violated the Sherman Antitrust Act, jeopardizing the 21 JOAs already in operation elsewhere.

The newspaper lobby, led by the Hearst Corporation (owner of the Seattle P-I) lobbied Congress heavily for a ''Failing Newspaper Act.'' This law, finally passed in 1970 as the Newspaper Preservation Act, allows the US attorney general to grant newspapers exemption from antitrust prosecution if one is ''in probable danger of financial failure'' and their JOA would serve the purpose of preserving ''separate and independent'' news voices.

A coalition of advertisers, suburban publishers, P-I employees, and citizens have mounted a concerted opposition. They pushed Attorney General Smith to order hearings on the application. The assistant attorney general for antitrust recommended disapproval, arguing that the P-I was not really failing.

Mr. Smith nevertheless approved the merger in June. The opposition promptly sued in federal district court to block it. Judge Rothstein ruled against the JOA because Hearst had not explored alternatives - namely, sale to another owner - for the Post-Intelligencer.

The opposition has filed notice it will cross-appeal on all the issues in which Judge Rothstein ruled in the JOA's favor, including whether the Newspaper Preservation Act itself is constitutional.

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