In preparation for oral arguments set for March 22 in Barnes & Noble and Borders Group's request for summary judgment to be granted in the price discrimination lawsuit filed against the two chains by the Intimate Bookshop, the lawyer for the bookstore has filed a memorandum of law stating why the case should move ahead. B&N and Borders are seeking to have the case dismissed, arguing that bookseller Wallace Kuralt's charges are not supported by the evidence and are based only on his own beliefs. To rebut that position, attorney Carl Person has drafted a document that purports to show some of the illegal activities the two chains allegedly induced publishers to participate in. The memorandum is based on about 15 depositions taken by Person as well as documents compiled in the American Booksellers Association's antitrust lawsuit against the chains and focuses on various pricing and discount policies used in the mid- and late 1990s.
According to the complaint, the chains received a variety of discriminatory benefits from publishers, including an additional Regional Distribution Center discount ranging from 1% to 4%; a 1% Return Center fee through the RDC; a 4% to 8% co-op allowance on the previous year's net purchases, involving no costs to the chains and no proof of expenditures; systematic non-payment of invoices; full credit for worthless books in excessive quantities through publishers' returns policies; deferred payment of invoices; and special-deal and shared marked-down books at higher discounts. Person claims that, taken together, the extra discounts and payments amounted to an effective discount for the chains of at least 60% compared to the 40% to 46% discount that Intimate could receive from publishers. B&N and Borders used the cash generated by the discounts to finance their expansion, which drove hundreds of independent bookstores out of business, including Intimate, the memorandum states.
To support his claims, Person said that chains had identified co-op advertising as a "major opportunity" and "profit center." The filing alleges that the chains only spent 16% of co-op dollars on advertising and used the remaining 84% on end-caps and other in-store placement programs where expenses are negligible. According to a document cited in the memorandum, B&N's co-op advertising from all publishers in 1997 was $113 million. The chains used pressure tactics to obtain the co-op allowances, threatening that if a publisher did not meet the terms granted to the stores by other publishers, the publisher could find itself "in a potentially injurious position," the memorandum states.
Person argues that the chains' claim that any extra discounts they received were only due to "meeting the competition" is seriously flawed. Among the points raised by Person are that B&N and Borders do not know what discounts the other is receiving, nor do they obtain any specific price offers from competing booksellers or publishers that the two chains are trying to meet. According to the memorandum, the chains' routine for inducing higher discounts entailed determining some new basis for compensation, then searching for one publisher to pay the new compensation, followed by sending "meeting competition letters" to all other publishers, asking for the same terms.
Person also alleges that the extra discounts for cost savings that the chains receive for having regional distribution centers and returns centers are not cost justified. According to the memorandum, the chains receive early shipments of books from publishers "because the use of RDCs results in delays upon reshipping new books to [chains'] retail stores, thereby imposing additional costs and discriminatory services on the publishers over and above the RDC 2% fee." Person further asserts that RDCs are not cost effective due in part to problems caused by the chains' own employees, and that the chains were receiving fees that served as extra compensation for "failing to employ skilled employees at their bookstores and data systems to do the work done by independents." In addition, the memorandum states that the additional 1% discount the chains received for returning books from a single center was not cost justified. The memo cites one publisher informing Borders that "we find that receiving returns from your warehouse is less time efficient and more costly than receiving returns directly from stores. It is therefore very difficult for us to justify an additional increase to our costs when the new system does not benefit us."
Person claims that publishers "had about 100 different ways to get additional money to the defendants beyond the basic discount at which Intimate purchased books from publishers... none of which were available or even known to Intimate until 1995."
