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09/26/89 Anthony R. Gold Et Al., v. Ziff Communications

September 26, 1989

ANTHONY R. GOLD ET AL., PLAINTIFFS-APPELLEES

v.

ZIFF COMMUNICATIONS COMPANY, D/B/A ZIFF-DAVIS PUBLISHING COMPANY, DEFENDANT-APPELLANT



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

553 N.E.2d 404, 196 Ill. App. 3d 425, 142 Ill. Dec. 890 1989.IL.1488

Appeal from the Circuit Court of Cook County; the Hon. Robert L. Sklodowski, Judge, presiding.

APPELLATE Judges:

JUSTICE DiVITO delivered the opinion of the court. HARTMAN and SCARIANO, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE DIVITO

Defendant, Ziff Communications Company, doing business as Ziff-Davis Publishing Company, appeals the circuit court's grant of a preliminary injunction requiring it to accept the reduced rate advertisements of plaintiff, PC Brand, Inc. (PC Brand). The issues presented are whether the circuit court erred in: (1) granting a mandatory preliminary injunction; (2) finding that plaintiffs would suffer irreparable harm in the absence of a preliminary injunction; and (3) granting the preliminary injunction despite the contention that plaintiffs failed to show that their threatened harm outweighed defendant's actual harm.

Defendant publishes, among other magazines, PC Magazine, PC Tech Journal, and PC Week (collectively, PC Publications). PC Magazine is a publication targeted at individuals and entities generally interested in, or in the market for, computer hardware and software products.

Plaintiff Anthony R. Gold (Gold) founded PC Magazine in October 1981. In November 1982, the corporate predecessor of defendant entered into various agreements with Gold whereby defendant obtained ownership and control from Gold of the corporation that owned PC Magazine. As consideration for the sale, Gold received a cash down payment, the right to installment payments tied to revenue, and the right to purchase a defined number of advertising pages in PC Magazine at a reduced percentage of the advertising fee published by defendant on its "rate cards," i.e., the rates at which defendant offered to sell advertising space to advertisers generally.

On September 15, 1986, defendant and Gold entered into an amended agreement, which restated and superseded the original agreement concerning reduced advertising fees. The amended agreement provided that through December 31, 1992, Gold was permitted to purchase a limited amount of advertising space in defendant's PC Publications, equal to the average number of ad pages used by each of the four largest advertisers in the preceding six issues, at a reduced rate that is 23.5% of defendant's "then current rate card" fees. The amended agreement contained no specific provision concerning the page placement of advertisements purchased by Gold; however, the practice was that Gold was given prime space position, in the first part of the magazine, similar to the space provisions given to PC Magazine's four largest advertisers.

The amended agreement further provided that Gold could use the advertising pages personally or "by a company which Gold control[led] (that is, in which [Gold] own[ed] at least 51% of the voting stock)," but this right could not be assigned, transferred or allocated to any other person or entity.

In January 1988, Gold and Stephen Dukker (Dukker) formed PC Brand, which was in the business of selling clone IBM personal computers by mail. Gold was the owner of 90% of the outstanding shares of PC Brand, while Dukker held the remaining 10% interest. Various interrelated agreements were entered into between Gold, Dukker, and PC Brand, including an "Assignment of Advertising Rights Agreement" in which Gold assigned the right to reduced advertising fees in PC Magazine to PC Brand. That agreement further provided that if PC Brand profited financially, those corporate monies saved from the discount rate, with a 25% pretax net income cap, would be paid to Gold.

In May 1988, PC Brand became operational and commenced placing advertisements in PC Publications at the reduced rate. In approximately August or September 1988, defendant first obtained copies of the assignment of advertising rights agreement; the shareholder agreement of Gold, Dukker and PC Brand; and the employment agreement between Dukker and PC Brand. After analysis of the agreements, defendant concluded that Gold possessed nominal, but not real, ownership of 90% of PC Brand's voting stock and that Dukker was vested with actual voting control of the company. Reasoning that Gold did not really own at least 51% of the voting stock of PC Brand and that Gold's rights to reduced advertising rates under the amended agreement were nonassignable "personal rights," defendant concluded that PC Brand was not entitled to the reduced advertising rates. On November 8, 1988, defendant notified Gold and PC Brand, by letter, of its Conclusions and its intent not to honor the advertising rights under the amended agreement.

On December 6, 1988, plaintiffs filed an action for declaratory judgment, injunction, and damages. On the same date, notice of a hearing on plaintiffs' motion for a temporary restraining order and preliminary injunction was given to defendant. On December 9, 1988, plaintiffs filed their motion for a temporary restraining order and preliminary injunction, including Gold's affidavit; defendant filed a verified answer, denying the allegations of the complaint, and a counter-claim; and a hearing was held. The primary issue was whether plaintiffs would suffer irreparable harm if defendant did not continue to advertise plaintiffs' products in PC Magazine. Defendant did not contest the issue of whether plaintiffs were likely to succeed on the merits.

At the hearing, Dukker testified that PC Brand had been formed to take advantage of the discounted advertising rate and that the operation of PC Brand was structured around the advertising discount which Gold obtained. Dukker testified that PC Brand's pricing, personnel, service, and credit standing were dependent upon its ability, as a new mail order house for PC computerware, to run multipage ads in PC Magazine. According to Dukker, PC Brand, so structured and operated, could be successful even though it was ...


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