Faced with a paucity of evidence, Federal Judge Jed Rakoff yesterday appeared poised to dismiss a lawsuit filed by independent booksellers against Amazon and the big six publishers over Amazon’s use of proprietary DRM in the Kindle e-reading platform. With plaintiff attorneys conceding there was no evidence of any conspiracy beyond the fact that the publisher contracts merely “allowed” Amazon to use its proprietary platform, Rakoff sounded deeply skeptical of the booksellers’ conspiracy claims, at one point saying he could not recall any case in “Anglo-American” law where “a conspiracy” was anything other than “a conscious agreement to commit an unlawful act.”
The oral arguments followed last week’s final briefings in Book House of Stuyvesant Plaza, Inc. et al v. Amazon.Com, in which lawyers for the big six publishers and Amazon argued the case should be dismissed. First filed in February by three named plaintiffs (The Book House of Stuyvesant Plaza of Albany, N.Y.; Fiction Addiction of Greenville, S.C.; and Posman Books of New York City), the suit alleges that Amazon’s use of proprietary DRM amounts to an illegal restraint of trade, and seeks an injunction that would essentially prohibit Amazon from “selling e-books with device and app-specific DRM.”
Kicking off yesterday’s oral arguments, Amazon attorney Kathryn Kirmayer said the allegations were baseless. The suit is not about “e-book supply,” or about e-book “pricing,” Kirmayer reminded the court, but rather the “critical monopolizing act” alleged in the suit is that Amazon’s use of an exclusive DRM on “its e-books that it sells to its customers” forecloses a portion of the market for independent bookstores—in other words, forecloses indie stores from selling onto the Kindle, the most popular e-reading platform. But, among the “many” problems with the bookseller suit, Kirmayer argued, the booksellers fail to define a “relevant market,” and can show no real market harm.
In terms of the relevant market, there are two in question, Kirmayer said: the market for e-books, and for devices. And, competition in both e-books and devices, by the plaintiff’s own admission, she argued, is robust, with major players like Apple, Microsoft and Google in the game, and with no claim to be made that Amazon’s behavior is inflating e-book prices or harming consumers. While the booksellers say that Amazon currently has a 60% share of both the e-book and device markets, market share doesn’t equal market power, Kirmayer said, stressing that the digital book business is still “in its infancy” and changing all the time. Notably, Amazon is not accused of taking anticompetitive action to try to “stabilize” its market share, Kirmayer added, saying that Amazon essentially created the e-book market with the Kindle platform in 2007, and it has not changed the platform since.
As to its contracts with the major publishers, Kirmayer questioned the booksellers’ “odd” suggestion that publishers would negotiate contracts with Amazon that would limit the markets into which they could sell e-books. She argued the Kindle platform was in fact pro-competitive—that Amazon developed the system so that e-books and devices would work well together for readers—and suggested that the booksellers were “frustrated middlemen” who wanted the court to “dumb down” Amazon’s breakthrough product so they too could profit from it.
Kirmayer was followed by Random House lawyer Saul Morgenstern, who argued for all the big six publishers on the one count of conspiracy alleged by the booksellers. Morgenstern conceded that the publishers’ contracts did require DRM be used on their e-books—but no proprietary DRM was specified, he said, and the DRM was mandated only as an effort to protect the publishers’ books from piracy. Like Kirmayer, he said it made “no sense” for publishers to enter into deals with Amazon that would limit their market. Further, he said, the publishers had no power to tell Amazon what kind of DRM or platform it should or must use. He said the bookseller claims had no basis in fact, were “counterintuitive,” and urged the court to dismiss the case, rather than subject the parties to a long expensive discovery phase.
Bookseller attorney Max Blecher then argued that the publishers and Amazon had “lost sight” of the issue of the oral argument: whether, as a matter of case law, there was enough of a case to proceed to discovery. There is no dispute, he argued, that the publishers, through their contracts, “condoned” the use of Amazon’s proprietary platform. Things got rocky from there, however.
“When does acquiescence constitute a conspiracy?” Rakoff interjected. Blecher attempted to answer, but Rakoff was clearly skeptical, at one point asking whether a homeowner who opens his door to someone who then robs a guest at gunpoint is part of a conspiracy to rob the guest. Blecher reiterated his contention that the threshold of the day was whether there were enough facts to allow discovery to go forward, arguing that Amazon, “blessed and approved by publishers” had established a closed market in which booksellers could not compete.
Still, Rakoff appeared uneasy at the prospect of sending the plaintiffs off on a fishing expedition for proof of a conspiracy. “You don’t have any other evidence, other than the contracts?” Rakoff asked. “No,” Blecher replied, “we do not.” But, Blecher added, he couldn’t even say for sure what was in the contracts, as the versions supplied were heavily redacted—at which point Rakoff ordered unredacted versions be submitted to him by noon today.
That order led to an interesting exchange. The publishers readily agreed to supply unredacted contracts, but Rakoff asked Morgenstern why the publishers felt they needed to redact the agreements in the first place. Morgenstern told the judge that they contained proprietary business information, but that none of the contracts explicitly referenced a proprietary DRM platform. “How do you know,” Rakoff asked? “Did you share them with each other?” No, Morgenstern said, walking his comment back, saying he was speaking only for Random House, and was merely assuming the others had similar deals.
In closing, Morgenstern urged the court to dismiss the case, and to protect the publishers from undergoing what would amount to a long, “expensive” discovery phase based only on a thin conspiracy claim. Rakoff reserved judgment, offering no timetable, and issued an immediate stay pending his decision on the motions to dismiss.
