In separate motions filed last month, Amazon and the Big Five publishers argued that a lawsuit accusing them of a conspiracy to fix e-book prices was “illogical” and should be dismissed. But in a lengthy opposition brief filed this week, lawyers for a potential consumer class portrayed their case as the second act of the Apple e-books case, and insisted there is more than enough evidence for the case to proceed.
In the 56-page filing, lawyers for the plaintiffs insist that the existence of Most Favored Nation clauses in the Amazon contracts of the Big Five publishers—the crux of the plaintiffs' case—is sufficient to allow the case to proceed, especially given that the MFN is the same mechanism five major publishers and Apple used to eliminate price competition from the consumer e-book market in 2010.
“In affirming Apple’s per se liability for its role in the publisher’s earlier conspiracy, the Second Circuit explained that when ‘multiple competitors sign vertical agreements that would be against their own interests were they acting independently,’ those agreements can ‘prove the existence of a horizontal cartel,’” the brief states, noting that the MFNs in the Apple case were found to be “strong evidence that Apple consciously orchestrated a conspiracy” among the publishers. “So too here,” the brief asserts. “Defendants’ contracts replicate the same illegal arrangement in the Apple litigation and provide direct evidence of a horizontal price-fixing agreement.”
But beyond the existence of the MFNs in their Amazon contracts, the plaintiffs also point out a number of so-called “plus factors” which they claim support their allegations of a price-fixing conspiracy.
Among them, the plaintiffs argue: the market for e-books "is concentrated;” Amazon and the publishers each had motives to collude—for Amazon it is a desire “to dominate its retail competitors” and for the Big Five “to regain control over trade e-book pricing;” Without some kind of collective involvement, "the agency model goes "against each publisher’s independent business interests;” The publishers sharply “raised [e-book] prices under the agency model even though e-book costs were not increasing;” And finally, the brief states, the publishers have “a history of collusive price-fixing,” and “Amazon is under investigation by multiple antitrust regulators.”
Surviving a motion to dismiss is a fairly low legal bar—the plaintiffs don’t have to prove their case at this point, only present sufficient evidence that a case exists, a standard, the plaintiffs' brief insists, that is clearly met.
The suit was first filed in the Southern District of New York on January 14 (and later amended) by Seattle-based firm Hagens Berman—the firm that successfully sued Apple and five major publishers for colluding to fix e-book prices in 2011. It alleges that Amazon and the Big Five publishers—Hachette, HarperCollins, Macmillan, Simon & Schuster, and Penguin Random House—are co-conspirators in an alleged scheme to keep e-book prices artificially high—specifically through the use of various forms of a Most Favored Nations clause (MFN).
But in their September 17 motions to dismiss, lawyers for Amazon and the Big Five publishers scoff at the allegations, and argue there is no evidence of any coordination, communication, or other agreement among them to fix e-book prices. Further, they insist that the alleged conspiracy fundamentally makes no sense: why would the five largest American trade publishers band together to give Amazon monopoly power over e-books—especially when the Apple case was all about the publishers seeking to blunt Amazon’s market power?
“If true, Plaintiffs’ conspiracy allegation would mean that the Publisher Defendants got together to create a monopolist retailer with whom they would then have to deal,” the Amazon brief states.
But in their opposition brief, plaintiff lawyers insist that the conspiracy is not only plausible, but probable.
“Publisher Defendants rely on Plaintiffs’ allegations regarding the Big Five’s fear of 'Amazon’s growing power,'" the brief explains. “But that fear is precisely why the Big Five wanted to take control over the pricing of their e-books—both before, in their agreements with Apple, and now in their agreements with Amazon. And that is why they picked up the conspiracy where they left off: they wanted to reintroduce the agency model to regain their control over pricing, even if that meant letting Amazon entrench its dominance in the retail market for trade e-books.”
And again, the brief points out, the plaintiffs don't have to prove the conspiracy at this stage, only that their allegations are plausible enough to avoid dismissal. "Although an innocuous interpretation of the defendants’ conduct may be plausible, that does not mean that the plaintiff’s allegation that that conduct was culpable is not also plausible,” lawyers argue.
To further buttress their case, the brief states, there is sufficient evidence to establish Amazon as a monopolist in the consumer e-book market. Amazon's defense to that charge “doesn’t pass the laugh test,” the brief states, alleging that Amazon controls “nearly 90%” of the consumer e-book market." And while Amazon doesn’t set e-book prices, its insistence on using MFNs, the plaintiffs argue, “ensure that no rival retail platform can differentiate itself from, or otherwise compete with, Amazon.”
In addition to “the destruction of price competition,” the brief asserts that Amazon’s practices "inhibit consumer choice” because potential competitors cannot offer promotional advantages or explore alternative business models. “That results in higher consumer prices, fewer technical innovations in e-books, and fewer innovations in the business of distributing e-books.”
There is no timeline for the court to rule on the motions to dismiss.