Rupert Murdoch’s News Corp paid $29.5 million to settle claims that it had “engaged in illegal computer espionage by breaking into” a competitor’s “password-protected computer system” in the US in 2009.
The payment was made by a little-known but lucrative arm of Rupert Murdoch’s empire running supermarket in-store advertising called News America Marketing.
News Corp paid out to settle two more linked lawsuits alleging other illegal business practices alongside the computer hacking claims.
Total payments were over $500m.
News America Marketing might be a low-profile arm of Murdoch’s corporation, but it is likely that these massive payments were discussed at board level.
A Murdoch executive called Paul V Carlucci ran News America Marketing. Carlucci is now the publisher of the Murdoch’s flagship US newspaper the New York Post, which links this bad business behaviour to the very centre of the News Corp operation. News Corp’s subsidiary was accused of the computer hacking along with other “illegal, anti-competitive and unfair business practices” in a battle over who controlled the lucrative in-store advertising market in the US.
News America Marketing ran coupon dispensers in supermarkets, which is a big business across the pond.
A rival firm called Floorgraphics pioneered a business running adverts on the floors and shelves of supermarkets. Big vinyl advertisements on the floor of stores became big business.
Murdoch’s marketing firm responded by going “to war” with Floorgraphics.
That war cost News Corp hundreds of millions of dollars, as it was forced to settle with Floorgraphics and other in-store advertising firms over claims of unfair business practices.
According to court documents obtained by the Morning Star, Floorgraphics International (FGI) claimed that News Corp’s firm was behind “intentional, deliberate and repeated invasions of FGI’s proprietary and confidential computer systems.”
FGI said in its court documents that “investigations shows that on at least 11 separate occasions between October 2003 and January 2004, News [America Marketing] intentionally, knowingly and without authorisation breached FGI’s secure computer system and repeatedly accessed, viewed, took and obtained FGI’s most sensitive and private information.”
FGI said that News Corp’s subsidiary had obviously got hold of its business strategy and pricing and was using these to push it out of business.
FGI said it had “traced the unauthorised access to a computer with an IP address registered at that time to News,” which was being used by a “computer believed to be operating in or around Hartford, Connecticut.”
FGI said the computer hacking was part of a concerted campaign including pressuring supermarkets not to use FGI, uncompetitive behaviour, harassing FGI employees by sending News America press releases to their own homes and “spreading rumours that FGI was going out of business.”
News America rejected the claims and went to court to fight the case.
However, after two FGI witnesses testified, News America settled the case for $29.5m.
This was the first of a series of settlements. In 2011 News America paid another in-store advertising firm called Insignia $125m to settle charges of anti-competitive behaviour. Insignia also accused News America of “false and deceptive advertising” of having “made repeatedly false and misleading statements,” of pressuring supermarkets to build a near monopoly. Insignia also said that News America had “hacked into a competitor’s computer files.” News America also paid a third in-store advertiser, Valassis Communications, around $500m over unfair competition charges. News America settled the cases after a whistleblower, a former News America executive, came forward.
The whistleblower Robert Emmel sent papers and a copy of his laptop hard drive to US senators and regulators at the security exchange commission.
In return, News America tried to silence him, first with a confidentiality agreement, then with a series of court cases.
While Emmel has struggled with the News International court cases, Carlucci is still both the publisher of Murdoch’s New York Post and head of News International’s US marketing arm. According to a profile in Forbes magazine, Carlucci tried to motivate his sales staff by showing them a film clip from The Untouchables in which Al Capone beats a man to death with a baseball bat.
Carlucci denied this in one of the trials involving Valassis Communications, claiming that he showed them a different speech from the film in which Al Capone discusses loyalty. According to testimony in the FGI case, Carlucci said staff who were uncomfortable with the company’s approach were “bed-wetting liberals” who would be “outplaced” from the firm.
Murdoch personally praised him, saying: “Paul Carlucci has a tremendous reputation in the advertising and marketing industries” when he made him publisher of the New York Post, adding: “Paul is without peer in the consumer advertising and marketing industry.”
The FGI, Insignia and Valassis cases suggest illegal practices are not limited to Murdoch’s News of the World operation. They also suggest that Murdoch is well aware of this.
James Murdoch argued that his father would have been unaware of News of World payouts because they were too small.
In his words, “There are thresholds of materiality whereby things have to move upstream” and the British payments did not pass those thresholds.
However, the News America payouts were over half a billion dollars, which must have enough “materiality” to jump his thresholds and move “upstream” to News Corp’s board. The News America settlements also show that the Murdoch empire doesn’t like competition. For all his praise of “the free market,” Murdoch and his companies don’t like competitors and seem to use underhand and illegal schemes to drive them away.
In Britain Murdoch’s newspapers created a sleazy atmosphere of bullying and sliming to win political influence that would allow News Corp to get round anti-monopoly laws.
In the US supermarket advertising business, his firm settled claims that it had used all kinds of dubious behaviour to break the competition.
The cases also show that an executive who thinks Al Capone is a model gets praised and promoted by Murdoch – that’s how the News Corp culture is formed.
I asked News Corp’s head of communications Jack Horner for a comment on the FGI case, but got no reply.
This article first appeared in the Morning Star on the 22nd July
http://www.morningstaronline.co.uk/news/content/view/full/107343Tags: Domestic (UK)
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This post was written by Solomon Hughes