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Authors and Booksellers to Justice Department: Investigate Amazon

We recently wrote about the Second Circuit’s June 30, 2015 decision affirming Judge Denise Cote’s decision that Apple conspired with five publishing companies to raise the price of e-books. As we explained in that post, Judge Dennis Jacobs—who dissented from the opinion—wrote that he would reverse the District Court’s decision because, inter alia, its rule-of-reason analysis failed to consider Apple as a horizontal competitor of Amazon and because Apple’s conduct was “unambiguously and overwhelmingly pro-competitive” in reducing Amazon’s monopoly power in the e-book market.

Following that decision, in mid-July Authors United (the “Authors”) and the American Booksellers Association (the “Booksellers”) wrote to the Department of Justice Antitrust Division asking that it “investigate Amazon’s power over the book market.”

The Authors asserted that Amazon now controls more than 75% of online sales of physical books; 65% of e-book sales; 40% of sales of new books overall; and 85% of e-book sales of self-published authors. These sales make Amazon the “largest publisher and distributor of new books in the world” and, the Authors believe, “Amazon has used its dominance in ways that . . . harm the interests of America’s readers.” More specifically, they contend Amazon:

•  Has pressured publishers and blocked or curtailed the sale of millions of books;

•  Has “engaged in content control, selling some books but not others based on the author’s prominence or the book’s political leanings”;

•  Has used its monopsony power to extract a greater share of the total price of a book from publishers;

•  Sells books below cost to acquire customers for unrelated lines of business;

•  Uses its market power to steer readers toward its own books, and away from books published by other companies; and

•  Dictates pricing to self-published authors.

The Booksellers raised similar issues, expressing concern “that the mega-book-retailer has achieved such considerable market power with such questionable business tactics that it is undermining the ecosystem of the entire book industry[.]” The Booksellers also complained that Amazon misused its market power by, for example:

•  Extracting concessions and kickbacks from publishers in exchange for offering their books;

•  Engaging in predatory selling, whereby “[h]uge numbers of book titles appear to be sold below cost” and “it is not clear whether Amazon makes money on its book sales at all” or “simply uses the category as a loss leader”;

•  Using a “closed Kindle e-book system” that allows “readers to only read books sold by amazon”; and

•  Engaging in free riding because “customers go to a physical bookstore to make a purchasing decision but actually purchase the item from an online retailer, in most cases Amazon.

It is unclear at this point how the Antitrust Division will respond. Notably, however, last month the European Commission announced that it had opened an investigation into Amazon’s e-book distribution arrangements. In particular, that investigation is focused on contract clauses that allegedly shield Amazon from competition from other e-book distributors by requiring publishers to inform Amazon of more favorable terms offered to Amazon’s competitors. We will continue to monitor investigations on these subjects.