May 23 2008
SB Sarah posted about the new antitrust lawsuit filed by publisher Booklocker against Amazon. Booklocker is asking for class action status. The suit alleges an unlawful tying arrangement between Amazon’s bookstore and Amazon’s printing arm (Booksurge).
We discussed a tying suit briefly in the comments when the news of Amazon’s requirement to use its POD service or suffer a financial penalty first surfaced.
The Advantage Program requires POD publishers to give Amazon 55% of the list price, pay them $29.95/year, and pay the shipping costs for books going to Amazon.
There are great resources on the internet that explain tying and one of them is a paper before the Federal Trade Commission that addresses the illegal tying of intellectual property rights. While the IP arguments don’t necessarily pertain, the prefatory material on this link is helpful in understanding the basics of a tying suit.
Probably the most famous recent tying cases have been against Microsoft. States across the country challenged Microsoft’s tying of its browser, Internet Explorer, to its operating system. Microsoft had built up a monopoly on personal computers. While this is not illegal in the United States, there are constraints on monopoly power. It is deemed improper when a “seller exploits his dominant position in one market to expand his empire into the next.” Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 608-11 (1953).
A monopoly shouldn’t exercise its power in a way that diminishes competition and harms consumers. The Antitrust laws are designed, not to ensure that a company acts more altruistic, but to protect consumers and therefore foster a competitive market.
When Microsoft was tying its web browser with its operating system, it had little incentive to be technologically innovative. The market, courts view, should be protected in a way to foster competition. In proving a per se tying, Booksurge will need to establish the following four elements:
(1) two separate products or services are involved, (the retail part and the publishing arm)
(2) the sale or agreement to sell one is conditioned on the purchase of the other, (this is where it gets a little muddy, I think. You can still use the retail part if you don’t use the publishing arm of Amazon, but you must pay a higher rate)
(3) the seller has sufficient economic power in the market for the tying product to enable it to restrain trade in the market for the tied product, (if the majority of sales one makes is through Amazon and this is true for the members of the affected class, I think that this would be satisfied) and
(4) a not insubstantial amount of interstate commerce in the tied product is affected. (SB Sarah’s post quoted the lawyer for Booklocker.com stating that there were over 4000+ publishers/consumers who might be affected by this)
This will be an interesting case to watch.