Antitrust Law Daily Wrap Up, ANTITRUST—D.N.J.: Textbook manufacturer unbound from tying claims, (May 1, 2015)

By Greg Hammond, J.D.

Allegations that a textbook manufacturer engaged in illegal tying in violation of the Sherman Act, by requiring that its textbooks and other materials be shipped by the manufacturer, were dismissed for failure to state a claim. The federal district court in Newark determined that the plaintiff failed to show: (1) distinct products; (2) market power of a relevant market or unreasonable restraint on competition; and (3) a substantial effect on interstate commerce (Debjo Sales, LLC v. Houghton Mifflin Harcourt Publishing Co., April 29, 2015, Arleo, M.).

Background. Delivery service Debjo Sales, LLC filed suit against textbook manufacturer Houghton Mifflin Harcourt Publishing Co., alleging that Houghton’s change in policy—requiring that all orders under $500,000 be shipped by Houghton and charging a 5 percent handling fee for orders over $500,000 that are picked up by customers—constituted an illegal tying arrangement. Debjo claimed that the policy change caused damage to its agreements with 23 or more schools and that some agreements were effectively nullified. Specifically, Debjo brought claims for illegal tying in violation of the Sherman Act, intentional interference with contract, unjust enrichment, and tortious interference with contractual relations. Houghton moved to dismiss.

Standing. Houghton first alleged that Debjo failed to assert sufficient facts to demonstrate that it is a competitor or consumer for purposes of antitrust standing. However, Debjo claimed that it was a competitor because it had contractual agreements that were nullified or damaged as a result of Houghton’s policy change. The court concluded that Debjo had antitrust standing as a result of a combination of: a causal connection of harm under its alleged theory—that the policy change substantially decreased the value of Debjo’s service; the type of injury Debjo complained of; and a lack of mitigating factors counseling against a contrary finding. This dispute, according to the court, was one for which antitrust laws were made: to prevent the tying of unrelated products by a market leader to decrease competition.

Tying. Although Debjo had standing to bring its antitrust claim, the court found that the shipping services provider failed to adequately allege tying. First, no distinct product was adequately alleged, as Debjo failed to assert sufficient facts to demonstrate that consumer demand for delivery of educational materials made it efficient to separate the materials from their delivery. Second, Debjo failed to allege enough facts to demonstrate a plausible market definition for K-12 educational materials or a national geographic market. Specifically, there were no facts demonstrating that school districts look to publishers across the nation when purchasing educational materials. Without a plausible relevant market, the court could not find that Debjo adequately pleaded that Houghton has market power.

Further, Debjo raised no facts concerning the reasonableness of Houghton’s policy change, and could therefore not proceed under a rule of reason analysis in lieu of demonstrating market power. Lastly, there were insufficient facts to demonstrate a substantial effect on interstate commerce. The only relevant allegation was that Houghton is a national company that ships textbooks throughout the nation.

The remaining tortious interference and unjust enrichment claims were also dismissed as inadequately pleaded. However, Debjo was granted 21 days to file an amended complaint.

The case number is 14-4657.

Attorneys: Randy T. Pearce (Pearce Law, LLC) for Debjo Sales, LLC. Matthew M. Oliver (Lowenstein Sandler, PC) and Stacey J. Rappaport (Milbank Tweed Hadley & McCloy LLP) for Houghton Mifflin Harcourt Publishing Co.

Companies: Debjo Sales, LLC; Houghton Mifflin Harcourt Publishing Co.

Cases: Antitrust NewJerseyNews