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Indie Bookstores File Antitrust lawsuit Against Amazon, Big 6 Pubishers

2828399275_b6677ccbe8[1]It’s only been a few weeks since the last of the 5 conspiring publisher settled the federal antitrust lawsuit which turned the ebook market on its head and today the market was turned upside down once more.

Three independent bookstores have filed a Class-action lawsuit today in New York. They allege that Amazon and all 6 of the Big 6 publishers (Random House, Penguin, Hachette, HarperCollins, Simon & Schuster and Macmillan) signed contracts that constituted a violation of section 1 and section 2 of the Sherman Anti-Trust Act.

To put it simply, the booksellers are suing as a class and argue that the Big 6 publishers insistence on DRM and Amazon’s decision to use a proprietary DRM is keeping them from effectively competing in the ebook market.

The plaintiffs claim they cannot sell the dominant ebook format because Amazon controls the DRM, and they can’t launch a competing platform because the publishers won’t deal directly.

The case was filed on Friday of last week by Book House of Stuyvesant Plaza, Posman Books, and Fiction Addiction. The first 2 stores are based in Manhattan and the third is located in South Carolina. They were filing on behalf of "all other similarly situated independent brick-and-mortar bookstores".

You can find the full complaint on Scribd. It’s not a difficult read; all the statements of fact, the allegations, and the prayer for relief are relatively straightforward.

The big question here is whether they have a valid case. Frankly, I don’t know.

But one thing I can say is that there is a big problem with the case. The Dept of Justice Antitrust Division disclosed last summer that Amazon was investigated as part of the investigation into Apple and the 5 publishers. The DOJ declined to file a lawsuit against Amazon, and that suggests that the booksellers have an uphill battle.

Does Amazon have a monopoly on the ebook market? Pretty much, yes. Thanks to DRM they certainly have a lock-in on their format and platform.

But has the competition been "unreasonably" harmed and have consumers been harmed? I’m not so sure you can prove that one. At first glance consumers have not been harmed; there’s been a fair amount of innovation in ebook tech and competition on price so this count is going to be difficult to prove. And as for the competition, well, it sucks to be in the last place in any market but the fact Amazon dominates the market is not actually illegal.

In addition to costs and a declaration that the Sherman Anti-Trust Act was violated, the plaintiffs are asking for an injunction that blocks Amazon from selling DRM-specific devices and apps, a second injunction that blocks the publishers from distributing their ebooks with device and app-specific DRM.

And the plaintiffs also want to be able to sell ebooks that are encumbered by "open-source DRM". That last bit is an interesting turn of phrase, and even though the booksellers don’t have a strong case I am hoping that the bookstores win.

The thing is, they goofed in asking for open source DRM. What they really meant was an industry standard interoperable DRM, (possibly a DRM schema like the IDPF is developing)  that would allow the bookstores to compete directly with Amazon. If they really got an open source DRM then it would be completely ineffective because it would be trivially easy to download the DRM code, build a DRM-stripper, and then post it online. That would also be legal, too.

I kinda hope the bookstores win just because of the open source DRM.

But it’s not clear that they will win nor is it clear that they’ll get all of what they want. Antitrust law is a weird thing in the US, and there’s no telling whether the subject of a suit will actually be punished or deserved it.

For example, AT&T held a monopoly on parts of the US telephone industry which was tacitly supported by the US govt for decades before the company was broken up in the early 1980s. And Microsoft was found to be a monopoly in the late 1990 but still allowed to continue to monopolize the market for PC operating systems.

This is going to be a fun one.


image by greeblie

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fjtorres February 20, 2013 um 11:23 pm

Fun? To watch it crash and burn, maybe.
I think it’s sad.
This thing is a candidate for summary dismissal with prejudice. I pity the bookstore owners who signed up with these ambulance chasers.
There are soooo many ways this suit is meritless…

First of all, Amazon is perfectly within its rights to use proprietary DRM: the abillity of hardware vendors to limit the content that can run on their devices was litigated and los decades ago in the Atari/Nintendo lawsuit.

Second, Amazon *doesn’t* require DRM anyway and the Mobi format is fully documented and open. Anybody can create and sell Kindle-compatible ebooks. And many do. Lots of authors on their websites, Baen, the late and lamented Fictionwise… So Amazon is in no way restricting consumers from getting content from outside the Kindle store. Pretty open and shut there.

Third, the publishers are in fact providing their books in an interoperable format that those indie bookstores can use *if* they cared to set up their own ebookstores. And there are plenty of players willing to provide those services; Overdrive, Bluefire, etc. So claiming the publishers restrict ebook distribution to the big players is demonstrably false. And if DRM’ing content is wrong, why did Congress pass a law to not only make it illegal to remove DRM but to even talk about how to do it? "What is expressly permitted can’t be forbidden."

Fourth, US Antitrust is all about *direct* protection of consumers and not companies (unless you are a big campaign donor to the president and the DOJ decides to serve as your hatchetman). They are filing in the wrong continent for antitrust to apply here. And since there *is* an "open" interoperable DRM scheme that is open to all comers (albeit for pay, just like the DVD CSS and the BD DRM schemes) *and* readily available from small independent ebookstores, it is easily demonstrable that the only reason Amazon has a high market share is because *consumers* choose it, not the publishers. I mean, the publishers just got taken to court for trying to illegally limit Amazon in favor of Apple! And they are supposed to be in cahoots with Amazon?? Puh-leeze.

Finally, let’s assume that the publishers all get visits from the ghost of ebooks future and miraculously convert to the DRM-free mantra… No more adobe tax.
What then?
Well, Amazon still has lower online overhead, they still are willing to live with razor thin profit margins. They still have global reach. They’ll still clean their clocks.
Worse, if they actually start supporting the new open standard they not only will sell ebooks to the 30+ million Kindle owners (and lord knows how many app-based customers) but also to Nook, Kobo, and Sony owners.
They’ll still have the better ebookstore, the better catalog, the better prices, the better policies and customer service…

Those folks are acting as if Kindle *hardware* is the key to Amazon’s success.
And I "vaguely" remember somebody round these parts arguing the opposite just last week… 😉

fjtorres February 20, 2013 um 11:26 pm

Oopsie: that should be "…the ability of hardware vendors to limit the content that can run on their devices was litigated and settled decades ago in the Atari/Nintendo lawsuit."

Nate Hoffelder February 21, 2013 um 12:27 am

I don’t think there’s much of a case either for historical reasons but I’m not completely sure they won’t pull something out of their hat.

This complaint only looks at the current situation and ignore how it came about. When Amazon launched the Kindle Store they were but one of many proprietary DRM schemas. Amazon won not through any nefarious means but by simply out-competing the competition. Customers stuck with them because Amazon was the best option, not because Amazon acted to sabotage or buy out the competition. (or did they?)

Speaking of which, how the hell did Apple get away with the shit they pulled back in early 2011? Shouldn’t that have merited an investigation by the DOJ? It would seem to be monopolistic and anti-competitive.

I’m not so sure that Epub is an effective counterpoint to the booksellers' requested relief. I think a better argument would be that tablets and smartphones can run any number of apps and that Amazon doesn’t actually block you from installing the competition’s reading apps. (I wonder if that’s why the Kindle Fire is only somewhat locked down; maybe Amazon saw this coming.)

And I have long since said that Amazon would come out ahead in a DRM-neutral ebook market; they will still out-compete everyone:

fjtorres February 21, 2013 um 12:54 am

I doubt there is a rabbit to be pulled out of a (political) hat. Heavy hitters these guys ain’t. They’re just trying to erase the last six years of open competition so they can do now what they lacked the vision to do then. Antitrust is not for mulligans.

Mike Cane February 21, 2013 um 6:54 am

>>>This thing is a candidate for summary dismissal with prejudice.

Yep. Next!

R. Scot Johns February 21, 2013 um 1:15 am

I’m going to sue my neighbor because he has a lock on his car that keeps me out, and I want it.

Jay Magidson February 24, 2013 um 11:42 am

This lawsuit smells of death. It is in fashion to pity the struggling brick and mortar bookstore. Unfortunately, it has become an inefficient and barely profitable model. Amazon didn’t invent the digital reader (I think Sony did), but they certainly made it work. Now they are the bad guys for creating a new way to read books. It is like suing the manufactures of CD players because they won’t play music cassettes (remember those?).

I’ve published several books, I am not forced to use DRM on Kindle, Amazon gives me the option. It is a way to protect the author. I format my books for print (soft and hardcover), kindle and epub so they are available on as many sites as possible as well as in bookstores. Any publisher can do this, and most do. Why can’t these stores simply get the epub version and offer that? They can. They are simply not using the tools available to them. Smashwords any one?

It is a sad and wasteful lawsuit. They need to use their precious dollars for better marketing and promotion (and books). Or they’ll soon find themselves selling buggy whips instead of books.

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