Bookhouse of Stuyvesant Plaza v. Amazon

The Bookhouse of Stuyvesant Plaza, Fiction Addiction LLC, and Posnan Books at Grand Central Inc. v. Amazon.com, Random House Inc., Penguin Group USA Inc., Hachette Book Group Inc., Simon & Schuster Inc., HarperCollins Publishers LLC, and Holtzbrinck Publishers LLC D/B/A MacMillan

Case Details:

This is a punitive class action suit filed by The Bookhouse of Stuyvesant Plaza, Inc., Fiction Addiction LLC, and Posnan Books at Grand Central Inc., three independent “brick-and-mortar” bookstores. These bookstores asserted antitrust claims against Amazon.com, Inc. and the six largest book publishers in the United States: Random House Inc., Penguin Group USA Inc., Hachette Book Group, Inc., Simon & Schuster, Inc., HarperCollins Publishers LLC, and Holtzbrinck Publishers, LLC (doing business as MacMillan).

The defendants have collectively moved to dismiss the Plaintiffs’ restraint-of-trade claim, and Amazon has moved to dismiss the First Amended Complaint completely.

 

Case Facts:

  • Plaintiffs sell both traditional print books and e-books.
  • Defendant Amazon, the country’s largest retailer of both print books and e-books, holds 60% of the U.S. e-book market. Its largest competitors are Barnes & Noble, which holds 27% of the market, and Apple, which holds less than 10%.
  • Amazon is also the maker of the “Kindle” line of e-reader devices. Kindle devices command 60% of what plaintiffs call the “dedicated e-reader market,” as well as 60% of the “small media tablet market,”
  • Since 2009, Amazon has also provided free Kindle applications or “apps” that enable Amazon e-book buyers to read Kindle-compatible e-books on “the iPhone, iPad, Android devices, the BlackBerry, Mac computers, and PC computers.”
  • Plaintiffs claim that the defendants’ collective share of the e-book market is similar to its share of the print book market.
  • While the First Amended Complaint does not allege each Publisher’s individual market share, the Publishers together account for 60% of the revenue associated with the sale of print books in the United States and 85% of the revenue from the sale of New York Times bestsellers.
  • When the Kindle was released in 2007, the defendants each entered contracts with Amazon for the distribution of e-books. Once Amazon began operating as a “closed ecosystem” each of the publishers entered into new contracts with Amazon.
  • The contracts required (in a limited manner) Amazon to use “digital right management access control technology” on all e-books distributed by Amazon. The DRM was originally developed by the music industry and is “specifically designed to limit the use of digital content after sale” in order to “prevent the unauthorized use, sharing, or copying of content.”
  • Although the contracts did not explicitly require further restrictions, Amazon’s DRM technology does, in fact, restrict the devices on which e-books distributed by Amazon can be read. In particular, e-books with Amazon’s DRM can only be read on Kindle devices or on non-Kindle devices that have been enabled with a Kindle app.

 

Plaintiff’s Argument:

  • The First Amended complaint alleges that the Publishers’ renewed contracts with Amazon, “along with the Publishers’ failure to directly license their e-books to independent brick-and-mortar bookstores, constitutes evidence of concerted activity” in restraint of trade by the defendants.
  • Plaintiffs also allege that the distribution contracts, along with Amazon’s decision to operate its e-book platform as a closed ecosystem, show that Amazon has monopolized or attempted to monopolize the U.S. market for e-books.
  • Plaintiffs claim violations of section 1 of the Sherman Act, which prohibits “every contract, combination … or conspiracy, in restraint of trade or commerce.” Of course, “restraint is the very essence of every contract,” – therefore, a literal interpretation of this provision “would outlaw the entire body of private contract law.”
  • Plaintiffs argue that defendants have caused three kinds of harm to that market:
    • Consumers “are unable to purchase e-books at their local independent brick-and-mortar bookstore that are readable on a Kindle device”
    • Price competition is restricted because independent bookstores “cannot sell e-books for the vast majority of consumers in the market because independent brick-and-mortar bookstores cannot sell the Publishers’ e-books … for the Kindle” and
    • Independent bookstores “have been foreclosed from selling e-books published by the Publishers for Kindle devices.”

Plaintiffs, therefore, allege harm not to the U.S. e-book market as a whole, but only to the portion of that market that is controlled by plaintiffs’ competitor Amazon.

 

Defendants’ Argument:

 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.”

  • The Plaintiffs have failed to accurately state a properly defined market within which defendants have price-setting power.
  • Plaintiffs’ allegations on this issue are contradictory. On the one hand, the allegations state allege that “relevant product market in this case is the market for e-books,” and contend that this market is distinct from the market for print books. On the other hand, plaintiffs never allege the Publishers’ market share in the U.S. e-book market. Rather, they maintain that the Publishers collectively hold 60% of the market for print books and simply state that their share of the e-book market is similar in size.
  • Without a more detailed argument, the Court cannot reasonably assume that these two markets are so different that e-books and print books are not acceptable substitutes, and yet so similar that the Publishers’ market share is the same in both.
  • Plaintiffs failed to prove any plausible market power. In particular, plaintiffs allege that Amazon holds 60% of the e-book retailing market and (inferentially) that the Publishers collectively hold 60% of the e-book publishing market. Multiplying these percentages together, any unlawful arrangement between the Publishers collectively and Amazon would affect only 36% of the U.S. e-book market.

 

Summary and Conclusion:

The speculative nature of the Plaintiffs’ allegations is clear, down to the wording of the First Amended Complaint. Plaintiffs do not specify who participated in these hypothetical discussions or agreements, only that they may have involved “one or more” of the Publishers and Amazon. This type of allegation does no more than raise theoretical possibilities, and accordingly falls well short of “the line between possibility and plausibility of entitlement to relief.”

The Plaintiffs have failed to state a plausible claim to relief under the Sherman Act. Second, the Court outlines the offense of monopoly as described by two elements of the Sherman Act:

  1. The possession of monopoly power in the relevant market
  2. The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

The Court concludes that plaintiffs fail to plausibly allege either of the required elements. For these reasons, the Defendants’ motion to dismiss is granted by the Court.

On May 12, 2016   /   Law Library