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Bookstores accuse Amazon (not Apple!) and publishers of e-books cartel

2/20/2013 COMMENTS (0)

Earlier this month, the publisher Macmillan finally threw in the towel and settled a Justice Department antitrust suit accusing it and four other major publishers of conspiring with Apple to raise the price of e-books by changing the pricing model previously imposed on publishers by Amazon. As my Reuters colleague Andrew Longstreth has reported, the Macmillan settlement leaves Apple as the only remaining defendant in the Justice Department case, which is headed for a June trial date. Justice is only asking for injunctive relief, but if Apple loses, it will face liability for steep damages claims by state attorneys general and private e-book buyers.

Apple and the publishers have long contended that the real villain in the e-books business is Amazon, which controls something like 60 percent of the market. According to Apple and the publishers, when Amazon introduced the Kindle e-book reader, it insisted upon a wholesale pricing model that permitted the bookseller to sell popular titles at below-cost prices, with the goal of establishing monopoly of the e-books market. Apple's agency model, in this version of events, was a response to Amazon's predatory pricing - an attempt to break Amazon's stranglehold.

Unfortunately for Apple (and the hundreds of public commenters who supported its view of Amazon), the Justice Department doesn't regard Amazon as an e-books predator. The Antitrust Division disclosed last summer that it investigatedAmazon as part of its e-books probe, but decided not to bring a case. "In the course of its investigation, the United States examined complaints about Amazon's alleged predatory practices and found persuasive evidence lacking," the government said in a response to objectors to its initial settlement with three publishers. "No objector to the proposed final judgment has supplied evidence that, in the dynamic and evolving e-book industry, Amazon threatens to drive out competition and obtain the monopoly pricing power which is the ultimate concern of predatory pricing law."

Tell that to a class of independent bricks-and-mortar bookstores that sued Amazon last week for antitrust violations. In a complaint filed in federal court in Manhattan, the bookstores' lawyers at Blecher & Collins claim that Amazon and six publishers violated the Sherman Act when they entered agreements to distribute e-books through Amazon Kindles. Those agreements, which supposedly permitted Amazon to use "digital rights management access control technology" to restrict e-books from being read via any devices except Kindles, were an illegal restraint of trade, according to the complaint, which also accuses Amazon of monopolization and attempted monopolization.

I asked Alyson Decker of the Blecher firm whether the bookstores' case suffers from the Justice Department's decision not to pursue Amazon. She said no, that the allegations in the new suit don't involve the predatory pricing allegations Justice investigated, but alleged restraint of e-books competition from independent booksellers. The key to the new case, she said, will be the contracts between Amazon and the publishers, which have not yet been publicly disclosed. Decker said there's no irony in alleging a conspiracy between Amazon and the publishers to establish the Amazon market dominance that the Justice Department claims to have been the target of the very same publishers' conspiracy with Apple. If you believe the allegations in both the new complaint and the Justice Department case - a big if, of course, considering that the publishers seem to have considered Amazon a bully, not a co-conspirator - major U.S. publishers in the e-books era have behaved like lost puppies, willing to go home with whatever master offers a bone.

I called Amazon for comment but didn't hear back.

(Reporting by Alison Frankel)

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