Antitrust Law Daily Wrap Up, TOP STORY—S.D.N.Y.: Independent bookstores’ antitrust claims against Amazon, publishers fail, (Dec 10, 2013)

By Jeffrey May, J.D.

An antitrust action brought on behalf of a putative class of independent “brick-and-mortar” bookstores against Amazon.com, Inc. and the six largest book publishers in the United States challenging Amazon’s e-book distribution practices has been dismissed by the federal district court in New York City (Bookhouse of Stuyvesant Plaza, Inc. v. Amazon.com, Inc., December 6, 2013, Rakoff, J.).

The complaint named Amazon—the country’s largest retailer of both print books and e-books—and publishers Random House, Inc.; Penguin Group (USA) Inc.; Hachette Book Group Inc.; Simon & Schuster Inc.; HarperCollins Publishers L.L.C.; Holtzbrinck Publishers, LLC. The complaining bookstores, which sold both print books and e-books, attempted to assert federal antitrust claims based on vertical conspiracies between Amazon and each of the publishers and on monopolization by Amazon.

The complaining bookstores took issue with Amazon’s “closed ecosystem” for delivery of e-books, which was allegedly “designed to leverage Amazon’s domination of the dedicated e-book reader market.” Amazon, which markets the Kindle line of e-reader devices, restricts the devices on which e-books distributed by Amazon can be read to Kindle devices or other devices—such as an iPads, BlackBerrys, or personal computers—enabled with a Kindle application or “app.” According to the plaintiffs, the publishers entered into distribution contracts with Amazon that “confirmed, affirmed, and/or condoned” these restrictive practices. As a result, the plaintiffs allege, independent bookstores could not sell e-books for the Kindle to consumers.

Conspiracy claim. At the outset, the court rejected the bookstores’ “threadbare” conspiracy allegations. The complaint contained “evasive” allegations that raised merely “theoretical possibilities.”

“Beginning with the requirement of concerted action, the speculative nature of plaintiffs’ allegations is evident from the very language of the First Amended Complaint,” the court noted. In order to allege a conspiracy, it was not enough to assert that the publishers were aware of Amazon’s restrictive e-book platform and did nothing to stop it, the court noted.

Even if the bookstores had plausibly alleged a conspiracy, they failed to plausibly allege that the agreements harmed competition or that the defendants had market power or “price-setting power” in a properly defined market. The plaintiffs failed to adequately allege a U.S. market for e-books. Even if they had alleged a cognizable market, “any individual vertical agreement between a Publisher and Amazon would affect only around 6% of the U.S. e-book market, a share far too small to suggest and ability to charge super-competitive prices,” the court decided.

Monopolization claim. The complaining bookstores also failed to plausibly allege either monopoly power or anticompetitive conduct to support their monopolization claim against Amazon. With respect to monopoly power, the proposed U.S. market for books was inadequate. Further, Amazon’s alleged 60 percent market share in the U.S. e-book market would be insufficient to infer monopoly power.

Because the bookstores’ claims that the agreements between Amazon and the publishers fell short of plausibility, those agreements would not amount to anticompetitive conduct to support the monopoly allegation. The court also concluded that Amazon’s decisions to use device-restrictive digital right management access control technology on the e-books it distributed and to restrict the e-books that could be read on Kindle devices and apps to e-books purchased from Amazon would not constitute anticompetitive conduct.

Generally, firms need not grant competitors access to their proprietary infrastructures. While there was an exception to that principle where a monopolist seeks to terminate a voluntary course of dealing, the complaining bookstores did not allege such a relationship, according to the court.

The case is No. 1:13-cv-01111-JSR.

Attorneys: Maxwell M. Blecher (Blecher & Collins) for Bookhouse of Stuyvesant Plaza, Inc. Edwin Mark Baum (Crowell & Moring LLP) for Amazon.com, Inc. Amanda Christine Croushore and Saul P. Morgenstern (Kaye Scholer LLP) for Random House, Inc. Daniel F. McInnis (Akin, Gump, Strauss, Hauer & Feld, LLP) for Penguin Group Inc. James W. Quinn (Weil, Gotshal & Manges LLP) for Simon & Schuster, Inc. Paul Madison Eckles (Skadden, Arps, Slate, Meagher & Flom LLP) for HarperCollins Publishers LLC.

Companies: Amazon.com, Inc.; Bookhouse of Stuyvesant Plaza, Inc.; Random House, Inc.; Penguin Group (USA) Inc.; Hachette Book Group Inc.; Simon & Schuster Inc.; HarperCollins Publishers LLC; Holtzbrinck Publishers, LLC.

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