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From Antitrust Law Daily, July 17, 2017

E-book retailer’s lack of antitrust injury doomed price fixing claims

By Jody Coultas, J.D.

The U.S. Court of Appeals in New York City affirmed a New York City district court’s ruling that e-book retailers failed to provide sufficient evidence that an alleged conspiracy among five book publishers and Apple Inc. caused the retailer to suffer antitrust injury. The district court properly granted the publishers’ collective motion for summary judgment in two separate antitrust suits, finding that the retailers were failing before the alleged conspiracy and that the retailers could not effectively compete through discounting or otherwise (Abbey House Media, Inc. v. Simon & Schuster, Inc., July 17, 2017, per curiamLavoho LLC v. Simon & Schuster, Inc., July 17, 2017, per curiam).

Abbey House Media, Inc., doing business as Books On Board (BOB), filed suit against Apple Inc. and publishers Hachette Book Group, Inc., HarperCollins Publishers, LLC, Macmillan Publishers Inc. and Verlagsgruppe Georg Von Holtzbrinck GmbH, The Penguin Group, and Simon & Schuster, Inc., alleging a conspiracy to fix prices and reduce competition in the e-book industry. E-book retailer Lavoho, LLC, the successor in interest to Diesel eBooks, LLC, filed a substantially similar suit.

BOB and Lavoho claimed that the publishers agreed to sign agency distribution agreements to supply Apple with their e-books; that similar e-book retailers were then also required to execute agency agreements; and that e-retailers lost the ability to discount e-books. The publisher defendants moved for summary judgment.

In 2015, the Second Circuit held that the publisher and Apple conspired unlawfully to restrain trade in violation of the Sherman Act. Specifically, the publishers simultaneously changed their business practices from the wholesale business model to the agency pricing model. Under the agency pricing model, the publisher required the retailer to sell the ebook at a retail price of the publisher’s choosing, and the publisher paid the retailer a commission for each sale.

The district court found that BOB failed to produce sufficient evidence to support its theory of injury and causation. In particular, the publishers provided "overwhelming evidence" that their alleged elimination of retail price competition did not cause the demise of BOB’s business. BOB’s argument that discounting was essential to its business strategy and that the inability to discount during the agency period deprived BOB of a critical tool was rejected. The court reasoned that it was indisputable that BOB could not compete effectively on price with the major retailers who employed discounting, such as Amazon and Barnes & Noble, particularly when both of those competitors also sold a device for reading e-books to which BOB did not have access.

In the suit filed by Lavoho, the court granted the motion for summary judgment, concluding that Diesel produced no evidence to demonstrate antitrust injury from a conspiracy that eliminated retail price competition for the publishers’ titles or to raise a question of fact that the conspiracy caused the failure of Diesel’s business. In particular, there was no evidence that Diesel competed or desired to compete on price with major e-book retailers when selling certain titles and that the alleged conspiracy rendered Diesel unable to compete.

The district court rulings that BOB and Lavoho suffered no antitrust injury from the unlawful antitrust conspiracy were affirmed by the Second Circuit for the reasons set forth in the district courts’ "thorough and well-reasoned written" decisions.

The cases are No. 16-305-cv and No. 16-726-cv.

Attorneys: Maxwell Michael Blecher (Blecher Collins Pepperman PC) for Abbey House Media, Inc. d/b/a BooksOnBoard. Yehudah Lev Buchweitz (Weil, Gotshal & Manges LLP) for Simon & Schuster, Inc. Maxwell Michael Blecher (Blecher Collins Pepperman PC) and Derek T. Ho (Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC) for Diesel eBooks, LLC. Yehudah Lev Buchweitz (Weil, Gotshal & Manges LLP) for Simon & Schuster, Inc. Bianca Cadena (Sidley Austin LLP) for Holtzbrinck Publishers, LLC d/b/a Macmillan and Verlagsgruppe Georg von Holtzbrinck GmbH. Saul P. Morgenstern (Arnold & Porter Kaye Scholer LLP) for The Penguin Group. Charles Scott Lent (Arnold & Porter Kaye Scholer LLP) for HarperCollins Publishers LLC. Linda H. Martin (Freshfields Bruckhaus Deringer US LLP) for Hachette Book Group, Inc.

Companies: Abbey House Media, Inc.; Hachette Book Group, Inc.; HarperCollins Publishers, LLC; Macmillan Publishers Inc.; Verlagsgruppe Georg Von Holtzbrinck GmbH; The Penguin Group; Simon & Schuster, Inc.; Lavoho, LLC; Diesel eBooks, LLC

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