Just one week after a marathon hearing in a New York courtroom, a federal judge has recommended that a potential consumer class action lawsuit accusing Amazon and the Big Five publishers of a conspiracy to fix e-book prices be dismissed.
First filed in the Southern District of New York on January 14, 2021 by Seattle-based firm Hagens Berman—the first firm to sue Apple and five major publishers for colluding to fix e-book prices in 2011, the e-book suit alleged that the Big Five publishers—Hachette, HarperCollins, Macmillan, Simon & Schuster, and Penguin Random House—were co-conspirators in an alleged hub-and-spoke scheme with Amazon to keep e-book prices artificially high and to ensure there is no retail price competition—specifically through the use of various forms of a Most Favored Nations clause (MFN).
But from the outset of the case, lawyers for Amazon and the publishers have insisted the alleged conspiracy was “irrational” and “implausible” and that there was simply no evidence to suggest collusion of any kind. In a thoroughly reasoned 54-page report, issued August 3, magistrate judge Valerie Figueredo agreed.
“Each Publisher could have rationally concluded that it was in its own self-interest to reach an agency agreement with Amazon, a crucial bookselling partner, to preserve its ability to distribute e-books through the largest retailer in the United States, even if it required acceding to Amazon’s request for an MFN clause,” Figueredo concluded. “And, because the Publishers compete in a concentrated market with a single dominant retailer, each Publisher could have rationally expected that the other Publishers would have reached the same conclusion about the need to secure an agreement with Amazon.
Figueredo's report and recommendation that the case be dismissed now goes to the judge presiding over the case, Gregory Woods.
"I would submit to your honor that it is absolutely irrational for the publishers to enter into a conspiracy to make Amazon a monopolist in the retail market," Amazon lawyer John Schmidtlein told the court at the hearing, with Scott Lent, arguing for the publishers, that there was simply no evidence showing there was "a meeting of the minds" among the publishers to collude with Amazon—and no “coherent theory” behind the case.
Lawyers for the plaintiffs, meanwhile, suggested the publishers’ history of coordination in with Apple, and the presence of virtually identical MFNs in each publisher’s contract with Amazon was “direct evidence of common agreement." Figueredo, who appeared skeptical of the plaintiffs' claims at the hearing, rejected those arguments.
“Because of the unique circumstances surrounding the Apple conspiracy, the Publishers’ prior ‘willingness’ to collude does not, standing alone, plausibly suggest a conspiracy among the Publishers again here,” the judge held. “In short, whether viewed individually or collectively, the [complaint] alleges plus factors that are no more consistent with a conspiracy than with rational behavior independently adopted by the Publishers acting within a concentrated market.”
The lack of any direct evidence was clearly a key point in the court’s decision. In the Apple case, Judge Denise Cote held that the use of agency agreements and the use of Most Favored Nation clauses were independently legal. What was not legal in the Apple case was the collusion and coordination among the publishers and Apple, evidence simply not present in this complaint.
“In short, the distribution agreements between the Publishers and Amazon reflect contract terms that are not inherently unlawful,” Figueredo wrote. “The mere fact that the Publishers entered into those agreements with Amazon is not direct evidence of a conspiracy to fix eBook prices and eliminate retail competition.”
From its initial filing, observers have believed that the complaint was a longshot. But knocking the case out at this stage is an important win for the publishers, avoiding the significant cost and inconvenience of defending the case.