Bookends & Beginnings LLC v. Amazon.com
| Docket Number | 21-cv-02584 (GHW) (VF) |
| Decision Date | 03 August 2023 |
| Parties | BOOKENDS & BEGINNINGS LLC, on behalf of itself and all others similarly situated, Plaintiff, v. AMAZON.COM, INC.; HACHETTE BOOK GROUP, INC., HARPERCOLLINS PUBLISHERS L.L.C.; MACMILLAN PUBLISHING GROUP, LLC; PENGUIN RANDOM HOUSE LLC; SIMON & SCHUSTER, INC., Defendants. |
| Court | U.S. District Court — Southern District of New York |
FILED UNDER SEAL: To be viewed only by the Parties and the Court
REPORT AND RECOMMENDATION
Plaintiff a bookseller that operates online and through a brick-and-mortar store, commenced this antitrust class-action suit on March 25, 2021, with allegations that Defendants Amazon.com, Inc. (“Amazon) and the five largest book publishers in the United States- Hachette Book Group, Inc., HarperCollins Publishers LLC, Macmillan Publishing Group, LLC, Penguin Random House LLC, and Simon & Schuster, Inc. (collectively, the “Publishers”)-had conspired to artificially inflate the wholesale prices for print trade books. See e.g., ECF No. 1 at ¶¶ 2-4, 22-23, 26. In a Report and Recommendation dated August 15, 2022, I recommended dismissal of all claims against Defendants. See ECF No. 141 (the “R&R”). The R&R was adopted by the Honorable Gregory H. Woods, and the Court dismissed without prejudice all of Plaintiff's antitrust claims on September 29, 2022. See ECF No. 156 ().
Plaintiff filed a Second Amended Class Action Complaint on November 21, 2022. See ECF No. 163 (the Second Amended Class Action Complaint (“SACAC”)). Plaintiff asserts claims against all Defendants for discriminatory pricing in violation of the Robinson-Patman Act, 15 U.S.C. § 13; unlawful restraint of trade under Section 1 of the Sherman Act, 15 U.S.C. § 1; and conspiracy to monopolize under Section 2 of the Sherman Act, 15 U.S.C. § 2. Plaintiff also asserts a claim against only Amazon for monopolization under Section 2 of the Sherman Act. As they did before, Amazon and the Publishers separately moved to dismiss the Second Amended Class Action Complaint under Federal Rule of Civil Procedure 12(b)(6). See ECF Nos. 179, 181. For the reasons that follow, I respectfully recommend that Amazon's and the Publishers' motions be GRANTED.
Amazon is “the largest retail bookseller in the United States market for the sale of print trade books,” accounting for “over half of all trade books purchased by consumers in the United States, including about 90% of all print books purchased online.”[2] See SACAC ¶¶ 3, 68, 99, 138, 178, 193. Bookends is a bookseller that sells print trade books online and at its brick-and-mortar store in Evanston, Illinois. Id. ¶¶ 1, 28. The Publishers are the five largest publishers in the United States and together account for about “80% of the sales of print trade books” in the United States. Id. ¶¶ 1, 2, 134. Collectively, the Publishers are responsible for many of the biggest titles in fiction and non-fiction, including the vast majority of New York Times Bestsellers. Id. ¶ 134.
This lawsuit concerns the sale of print trade books (hardbacks, paperbacks, and mass-produced) in the U.S. wholesale market. Id. ¶¶ 1 n.1, 24, 112-14. The Publishers are “horizontal competitors” in the publication of print trade books and in the sale, at the wholesale level, of print trade books. Id. ¶ 2. The Publishers sell print trade books to retailers, like Plaintiff and Amazon, under a wholesale model-which is defined as a discount from a publisher's list price for a book. Id. ¶ 6. A publisher's “list price” is the suggested retail price for a book; it is the price at which “a substantial number of sellers sell trade books” to consumers. Id. ¶¶ 4-5, 107-08. The list price is also used to determine the wholesale price for a book. Id. ¶ 6. Higher list prices generally mean that booksellers, like Plaintiff, pay a higher wholesale price and consumers pay a higher “retail price[ ]” for print books. Id. ¶ 104; see also id. ¶ 72, 107. Higher wholesale prices also lead to “lower total market output of books.” Id. ¶ 104; see also id. ¶ 109.
At retail, a bookseller like Plaintiff, sells the Publishers' trade books at the list price or at a discount from the list price. Id. ¶ 5; see also id. ¶¶ 107-08. Plaintiff purchases trade books from the Publishers at Plaintiff's “standard discount price of up to 46%” of the list price. Id. ¶¶ 6, 152. [Redacted] Since 2015, Amazon has received “substantially higher discounts (i.e., lower prices)” from the Publishers than the “prevailing rate paid by other print trade book retailers.” Id. ¶ 7; see also id. ¶¶ 12-13.
The Second Amended Class Action Complaint alleges that the Publishers acted collectively to “control wholesale prices of print trade books” by “knowingly assenting to individual vertical agreements with Amazon,” the “dominant retail bookseller” through which the Publishers “sell their print trade books,” the effect of which was to “entrench Amazon's monopoly. Id. ¶¶ 44, 81-83, 174. In 2014 and 2015, the Publishers executed “book distribution agreements” with Amazon, wherein the Publishers collectively agreed to sell their books to Amazon at prices that were “steep[ly]” discounted and below the standard discounts available to other booksellers, like Plaintiff. Id. ¶¶ 8, 19, 44, 54-55, 171. [Redacted]
The Publishers' agreements with Amazon “jointly commit them to sell to Amazon at prices below the standard discounts available to other booksellers.” Id. ¶ 11. The agreements committed the Publishers to [Redacted] Id.
In addition, the Publishers provide other “favorable terms” to Amazon that are not available to Plaintiff and members of the class on a proportional basis. Id. ¶12. For example, the [Redacted] [Redacted] 'increase rhe cost of selling to Amazon as compared to other Booksellers.” Id. ¶¶ 12, 160. Consequently, Amazon is a “costly and inefficient distributor” of the Publishers' books. Id. ¶¶ 14-16.
[Redacted] other words, each Publisher knew that the monetary and performance terms of its contract with [Redacted] Amazon reflected the terms of its competitois [Redacted] Id. ¶¶ 110, 36, 39-40, 56, 83, 163. Thus, even the first Publisher to reach an agreement with Amazon [Redacted] “agreed to the same discriminatory terms and knew” that the other Publishers had done so as well. Id. ¶ 39. Knowing that each Publisher agreed to the same discriminatory terms, gave each Publisher the “necessary assurance that their principal publishing rivals would not gain a special advantage in a niche market or generate price wars at the wholesale level by offering better terms to Amazon's rivals.” Id. ¶ 55. Amazon “facilitated the conspiracy” by offering each Publisher the same book distribution agreement. Id. ¶¶ 37, 174-75. In other words, Amazon (the “hub”) coordinated a horizontal conspiracy agreement among the Publishers (the “spokes”), that provided “Amazon a discriminatory discount on print trade books” and raised the list price and wholesale price paid to the Publishers by booksellers like Plaintiff. Id. ¶¶ 36, 174.
Publicly, the Prtblishers are “diametrically opposed to Amazon's consolidation of market power and their dependence on Amazon as their principal distributor of their books.” Id. ¶ 170. Acting individually, none of the Publishers would have had an incentive to enter into “discriminatory agreements” with Amazon that consolidated power in Amazon and ceded substantial control over the distribution of their books. Id. ¶¶ 42, 170. For example, if only one Publisher gave “discriminatorily lower prices to Amazon, it would suffer significant revenue loss as Amazon purchases a high percentage of its print trade books, and it would be unable to recoup that revenue loss by raising its list price.” Id. ¶ 42. Acting alone, none of the Publishers could have raised the market price of print trade books. Id. ¶ 51. If a Publisher tried to raise its list price, it would lose sales and market share to competing publishers who would have no incentive to also raise their list price. Id. ¶ 42. For example, in 2010, each of the Publishers except Random House (which was then separate from Penguin) colluded to raise eBook prices; Random House, “the lone holdout,” experienced a 41% increase in sale of eBooks while the other Publishers sold 12% fewer eBooks. Id. ¶ 52.
If, however, the other Publishers also agreed to give Amazon discriminatory discounts, then all the Publishers would have an incentive to raise list prices so as to recoup the lost revenue, and no one Publisher would lose market share to another Publisher. Id. ¶ 42. Further, all Publishers would increase their profit margin because their list price to Amazon's competitors would go up while the discount rate to those retailers would remain the same. Id.
The Publishers had “opportunities to collude,” and have colluded in the past. Id. ¶ 171. From 2010 to 2012, the Publishers conspired with Apple to raise the prices of trade eBooks. Id. ¶¶ 54, 93, 171. That conduct led to an investigation by the European Commission's Directorate General for Competition. Id. ¶ 93; see also id. ¶ 95. The Publishers also paid substantial sums of money in settlement fees as a result of consumer class actions and an action commenced by the United States against the Publishers and Apple. Id. ¶¶ 54, 93-95, 173.
For its part, Amazon participated and facilitated the “horizontal agreement” among the Publishers by “coordinating a series of substantially identical agreements with the same anticompetitive terms and making clear to each [Publisher] that it was offering each of them the same deal.” Id. ¶¶ 38, 174-75. Amazon knows that the discounts it receives...
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