I just finished reading U.S. District Judge Denise Cote’s 56-page opinion and order in the eBooks class action lawsuit filed against Apple and five Defendant Publishers. Click here for the PDF. Some of it is writing only a legal beagle could follow, but surprisingly long sections read like a novel or a well-written Harvard Business School case study. On May 15, Judge Cote denied the defendants’ motion to dismiss the lawsuit. What made as much news as that, though, was the clarity and oomph with which she described the case against Apple, HarperCollins, Hachette, Macmillan, Penguin, and Simon & Schuster.
Noting that the defendants argue the complaint against them “contains no independent allegations of a direct agreement to raise the price of eBooks,” Judge Cote penned this simple, declarative sentence: “The defendants are incorrect.” She goes on to recount the complaint’s charge that Hachette’s CEO in a meeting with an Amazon executive represented that Amazon’s $9.99 pricing for eBook best-sellers and new releases was a “big problem for the industry.” The judge opines that it’s a stretch to accept the defendants’ claim that the Hachette boss was talking about bookstores, not the other Publisher Defendants. “And there is more,” she continues, moving on to descriptions of separate meetings that four of the Publisher Defendants had with Amazon “on the very same day in which they made identical demands on Amazon to switch to the agency model.”
If you only have time to read a portion of Judge Cote’s order, I recommend the 17 pages starting at page 4. Titled “Background,” this section is a nearly thrilling account of how we got here. Judge Cote takes facts for this section from the complaint, and these facts are taken to be true for the purposes of her decision on whether to dismiss the lawsuit. As a narrative, “Background” is instructive reading for anyone who cares about eBooks and what we pay for them. In addition, I found the following nuggets to be enlightening:
- The five defendants plus Random House, which did not agree to Apple’s terms for inclusion in the iBook Store until March 1, 2011, published more than 90 percent of all hardcover New York Times bestsellers in 2009.
- By 2010, Amazon had captured 90 percent of eBooks sales volume in the U.S.
- The Complaint portrays the price-fixing conspiracy in three stages: 1) the “windowing” of eBooks–releasing hardcover books first, delaying the availability of eBook versions, 2) contracting with Apple in order to persuade Amazon to raise eBook prices, and 3) forcing an industry-wide shift to the agency model, under which publishers–not retailers–set the retail price for eBooks.
- By not joining the other five publishers and Apple until later, Random House increased its eBook sales by 250 percent in 2010 as it continued to sell them at $9.99.
Judge Cote will preside over the class action suit brought by Hagens Berman Sobol Shapiro, a Seattle law firm, as well as the antitrust case brought by the Department of Justice. The defendants are also negotiating with state attorneys general led by the AGs of Texas and Connecticut to reach a settlement that would enable the defendants to escape from the threat of the class action suit.
It is too soon to start counting your restitution payments for all those eBooks you bought in the past two years for more than $9.99. But it’s obvious that the legal challenges facing Apple and the Defendant Publishers will not be inexpensive and will not go away soon.