E-book plaintiffs scramble to save class action after magistrate seeks dismissal

(Reuters) – Lawyers for plaintiffs in an antitrust class action lawsuit alleging Amazon.com Inc conspired with five major U.S. publishers to fix the price of e-books have argued in a new brief that a Manhattan federal magistrate ignored wrongly pointed to clear evidence of collusion when she recommended dismissal of their case last month.

The basic facts presented in their amended complaint, combined with basic economic principles, are sufficient to substantiate their claims, wrote attorneys for plaintiffs Hagens Berman Sobol Shapiro and Sperling & Slater. Over several months in 2014 and 2015, the plaintiffs’ companies said the Big Five publishers – Penguin Random House LLC; HarperCollins Publishers LLC; Hachette Book Group Inc; Macmillan Publishing Group LLC; and Simon & Schuster Inc – each signed a pricing agreement with Amazon that allowed publishers to set ebook prices, but locked in Amazon’s 30% “agency” fee for each ebook sale and ensured that Amazon’s prices could not be discounted by other ebook sellers.

These deals, according to plaintiffs’ attorneys, accomplished what Amazon and publishers wanted: They cemented Amazon’s overwhelming dominance in the e-book market while allowing publishers to raise prices.

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“These allegations are sufficient under the Sherman Act to state a prima facie antitrust claim against Amazon, regardless of any horizontal agreement between the defendant publishers,” plaintiffs’ attorneys argued before U.S. District Judge Gregory Woods of Manhattan, who will decide to adopt the August 3 report and recommendation of US Magistrate Judge Valerie Figueredo. “The expected outcome under basic economic theory (and the actual outcome) is what the plaintiffs plead here: supracompetitive consumer prices.”

Figueredo’s report recommended dismissing all three class action claims under the Sherman Act: unlawful restraint of trade and conspiracy to monopolize against all defendants and monopolization against Amazon.

The magistrate concluded, generally speaking, that the plaintiffs had not provided evidence that the publishers colluded with each other or with Amazon when they entered into their agreements in 2014 and 2015. It is entirely plausible , Figueredo said, that each publisher made the same rational, independent determination it needed to preserve its access to Amazon, the main ebook distributor. Moreover, she said, each publisher could have reasonably expected its competitors to come to the same conclusion. Essentially, she said publishers don’t need to agree on a strategy for dealing with Amazon because they each know what the industry as a whole needs to accomplish.

Under the rigorous test of antitrust pleadings, Figueredo said, plaintiffs alleging collusion must show more than parallel actions by the accused conspirators. Here, she says, e-book consumers don’t pass that test. None of the theories alleged in the e-book complaint – including claims that the publishers acted against their own interests; that they have a history of collusion dating back to an alleged conspiracy with Apple Inc; and that e-book prices rose despite no increase in production costs – were “more consistent with conspiracy than with rational behavior independently adopted by publishers acting within a concentrated market”, argued said Figueredo.

The magistrate also dismissed the plaintiffs’ claim that, in combination, the publishers’ individual agreements acted as a restraint on competition under the ‘rule of reason’ analysis. Figueredo said the plaintiffs failed to demonstrate that a single publisher had the power to dictate terms across the industry.

“In the absence of evidence of coordination,” she said, “there is no plausible allegation to infer that the single-publisher agreement with Amazon resulted in price increases at the scale of the market for commercial e-books”.

In their new brief urging Woods to overturn the magistrate’s recommendations, the plaintiffs argued that Figueredo missed the big picture. Hagens Berman, as you may recall, previously won a $450 million settlement with Apple after the US Department of Justice sued the company for conspiring with publishers to break Apple’s hold. Amazon in the e-book market. (The publishers entered consent judgments with the government but did not plead guilty.) It should be obvious, the plaintiffs said in their new brief, that the same collusive motive drove the publishers’ pricing deals with Amazon once they were out of government oversight.

“The accused publishers never backed down from their plot, the brief states. “Instead, the defendant publishers returned to Amazon to continue where they left off…In short, while the defendant publishers’ competing interests, acting alone, were at odds with Amazon’s dominance over the retail market, it benefited each of them for as long as they acted collectively.

Rather than looking at each publisher’s market share, according to the brief, the magistrate should have looked at the cumulative impact of their side deals. If Figueredo had applied the correct test of the rule of reason, according to Hagens Berman and Sperling & Slater, she would have concluded, as the courts did in the Apple eBooks litigation, that the publishers’ agreements with Amazon reduced competition and resulted in higher prices for consumers.

I emailed Amazon attorneys John Schmidtlein, Jonathan Pitt, and Carl Metz of Williams & Connolly, but got no response. Macmillan lawyer Joel Mitnick of Cadwalader, Wickersham & Taft and Simon & Schuster lawyer Yehudah Buchweitz of Weil, Gotshal & Manges declined to comment on the plaintiffs’ new filing. I have not received responses from attorneys for the other publishers: Jennifer Patterson and Scott Lent of Arnold & Porter Kaye Scholer for Penguin Random House and HarperCollins and Rich Snyder of Freshfields Bruckhaus Deringer for Hachette.

The record does not indicate whether the defendants intend to respond to the plaintiffs’ arguments regarding the magistrate’s report. There is also no indication of when Woods will rule on the dismissal.

Read more:

Guess who isn’t a class member in the new Amazon ebooks deal? Amazon customers!

Apple’s $450 million e-book settlement gets final court approval

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Alison Frankel

Thomson Reuters

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A graduate of Dartmouth University, she worked as a journalist in New York covering the legal industry and law for more than three decades. Before joining Reuters, she was an editor and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.