RELATED DOCUMENT: Source vs. Time Warner Retail [PDF] [0]

The battle between wholesalers, retailers, distributors and publishers has just taken a more public turn with a lawsuit [0] levied against Time Warner Retail by Source Interlink’s distribution division, Source Interlink Distribution, LLC. The former Chas. Levy Circulation Company, acquired by Source in 2005, is alleging breach of contract; discriminatory and retaliatory business practices; unfair competition; and interference with existing retailer customers.

The suit was filed in Los Angeles Superior Court on May 9 by Blecher & Collins, the attorneys representing Source Interlink Distribution. The suit names “Time Distribution Services Inc.”—now Time Warner Retail Sales & Marketing—as defendant.

When contacted by FOLIO:, a Source Interlink spokesperson declined to comment.

According to the lawsuit, Source alleges Time Warner Retail broke an agreement begun in 2001 by selling “Levy Data”—information “relating to the delivery, sale and return of magazines” at various retailers, including “purchase and return patterns of individual stores which magazine publishers covet”—to third parties as a service or part of a package of services. Source claims that the 2001 agreement was created on the condition that Time Warner Retail did not disclose the Levy Data to a third party.

Damages 

As a result of the breach, Source is claiming it has lost or will lose customers, value and goodwill in its business. The company has not yet figured exactly how much value has been lost but has “reason to believe” damages are no less than $4.6 million.

Source Interlink is also claiming that Time Warner Retail began a discriminatory return policy in May where Barnes & Noble—Source’s largest retail customer—must return all unsold Time titles. “It has never been industry practice, policy or custom to require specialty retailers such as Barnes & Noble to return entire magazines to Defendant [Time Warner Retail],” says the suit. “Such a policy is unjustifiably onerous and burdensome and will tremendously increase costs associated with returns for Plaintiff and retailers.”

Source is claiming that Time Warner Retail’s pricing policy of Time titles is cutting into margins in high-cost distribution markets such as New York, Los Angeles and Chicago, and “deliberately forcing Plaintiff to operate at significantly lower margins in these markets.”

"Source has been growing rapidly," says one industry observer. "They
have purchased wholesalers over the past few years, and when they do
that they have access to all of their pricing. So they can see where
there’s parity in pricing and where there is a discrepancy. That’s why
they have visibility to these types of things that would potentially
lead to this kind of action."

Source also alleges that Time Warner Retail is interfering with its retail customers: “Plaintiff is informed and believes and thereon contends that Defendant has contacted Plaintiff’s retailers in an effort to interfere with its business relationships and to exert pressure to force Plaintiff into substantially devalued pricing deals."