Publishers Escape Liability in E-Book Antitrust Case

A federal appeals court said book publishers violated antitrust laws by conspiring to change prices for ebooks, but they did not injure the retailers who sued them over it.

In Diesel eBooks v. Simon & Schuster, the U.S. Second Circuit Court of Appeals said the retailers could not prove by the publishers caused their losses. The decision also spared further embarrassment for Apple, which was forced to pay a record fine in a related matter.

"We have ruled that the publisher Defendants and Apple did indeed conspire
unlawfully to restrain trade in violation of the Sherman Act," the judges said, referencing
United States v. Apple. However, the court said the conspiracy did not cause the plaintiffs any damage in this case.

Closing the eBook Sellers

In the ebook infancy, the industry operated largely on a wholesale business model. Publishers would sell ebooks to retailers with a suggested price, but the retailers set the final price.

The major publishers unilaterally changed the model, however, requiring retailers to sell at the publisher's price. The publisher then paid the e-tailer commissions for sales.

In the wake of the change, Diesel went out of business. Its successor in interest, Lavoho, sued in federal court. BooksOnBoard, another defunct ebook retailer, also filed in Abbey House Media v. Simon & Schuster. The Second Circuit decided them at the same time.

Conspiracy, Chapter Two

The appeals court had already heard the story, when the federal government and 33 states sued Apple and six major publishers. The trial court found they violated the Sherman Act.

"Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices," U.S. District Judge Denise Cote wrote at the time. "Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant."

Apple appealed that decision, which wound up on the front steps of the U.S. Supreme Court. But the justices rejected it last year, leaving Apple with a $450 million fine to pay.

In the Diesel and Abbey House cases, however, the retailers had no damages and actually benefited from the change in pricing.

Related Resources:

• United States Second Circuit Cases (FindLaw's Cases & Codes)
• Book Publishers Defeat Antitrust Appeals at Circuit (New York Law Journal)
• Foot Locker Loses Appeal of $180 Million Verdict for ERISA Violations (FindLaw's U.S. Second Circuit Blog)