There was nothing friendly in the message coming over the fax machine to News Corp. chief financial officer David DeVoe, CEO Rupert Murdoch's right-hand man. On March 3, 2004, famed investor and insurance magnate William Berkley sent the confidential fax to DeVoe. The subject: computer hacking and other allegedly anticompetitive behavior by a News Corp. subsidiary against Floorgraphics, a New Jersey--based in-store-advertising pioneer in which Berkley was a major investor. "We have just discovered evidence that our proprietary and password-protected computer files of past, current and upcoming floor ad programs has been breached by [News Corp. subsidiary] News America [Marketing], as identified by their IP address," Berkley's fax read. "It appears News America acquired inside knowledge of our systems and passwords through some sort of corporate espionage."
The computer breach was part of what Floorgraphics would later say in federal court was a broader attack by News America Marketing that also included efforts to swipe its clients and destroy its reputation while claiming its market share and driving it into the ground. And Floorgraphics wasn't the only target. The News America strategy, detailed in court documents, was part of a broader, multiyear attempt by News America and its CEO, Paul Carlucci, to dominate the entire emerging market for in-store graphical ads, which include shelf-mounted coupons and floor decals: "A deliberate and malicious campaign," Floorgraphics alleged, "so that News [America] could have exclusive control of all major in-store marketing programs."
The revelation that News Corp. was informed seven years ago of allegations of computer hacking and other anticompetitive practices by a minor U.S. subsidiary comes at an inopportune time for Murdoch. The House of Commons and the British police are conducting widening probes into phone hacking and bribery by his British newspapers in their campaign to scoop the competition. Most recently, Scotland Yard expanded its investigation to include computer hacking as well. And the U.S. Justice Department has opened a probe into News Corp., including a look at the hacking allegations Berkley warned News Corp. about. The wider investigation, a government source tells TIME, will explore whether the Floorgraphics case is an isolated one or if it "fits into a larger pattern of behavior."
Floorgraphics was a classic American start-up. The company was launched in 1996 in Cherry Hill, N.J., with seed money from Berkley's private investment fund. With brothers George and Richard Rebh at the helm, the company pioneered the idea that decal ads attached to supermarket floors would lure shoppers to products on nearby shelves. Court records show the company started in donated space with a handful of employees, who sometimes slept in the office at night. It brought in less than $1 million in fiscal year 1997, but by June 2001, Floorgraphics was hauling in more than $55 million. In 2002, Inc. magazine named it the 39th fastest-growing U.S. company. And it was aiming high: advertisers spend $542 billion on all kinds of in-store marketing, according to a May 2010 figure in Ad Age.
In the 1990s, News America was mostly in the business of selling coupons called freestanding inserts, or FSIs, in Sunday newspapers. But in 1997 it bought ActMedia, the dominant player in in-store marketing, a profitable niche that included traditional point-of-purchase advertising like placards as well as novel techniques like using shelf-mounted coupons.