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Summary:

Penguin Group, one of the “Big 5″ publishers caught up in a lawsuit over e-book pricing, says customers agreed not to sue them when they tur…

Amazon Kindle 3
photo: Amazon

Penguin Group, one of the “Big 5″ publishers caught up in a lawsuit over e-book pricing, says customers agreed not to sue them when they turned on their Nook and Kindle devices.

The publisher, in a memo filed last week, claims that the device owners signed an agreement — much like a phone contract — in which they accepted that any disputes will go to an arbitrator, not to court.

These “no lawsuit” contracts gained traction last year after a divided Supreme Court agreed that phone giant AT&T (NYSE: T) could force consumers to waive their rights to sue.

The contracts help companies stamp out expensive class action lawsuits and instead force consumers to take up grievances on a one-to-one basis.

In the case of e-books, class action lawyers are claiming that five publishers entered a conspiracy with Apple (NSDQ: AAPL) that forced Amazon (NSDQ: AMZN) to change its pricing system. The Justice Department has threatened to sue the alleged conspirators for violating the Sherman Act while European regulators have launched a similar investigation.

Penguin’s legal strategy is a bold one. The publisher is trying to step into the shoes of Amazon and Barnes & Noble (NYSE: BKS) since the retailers won’t trigger the arbitration provision themselves (in fact, the retailers are probably cheering on the consumers).

Penguin says it should benefit from the arbitration clause because it is “linked textually” to the retailers’ Terms of Service — the contract that people click “yes” to when they first turn on their device.

For legal types, here is how Penguin sums up its argument:

In short, plaintiffs’ Complaint manifests that plaintiffs consented to arbitrate when they purchased eBooks and entered into arbitration agreements with the disclosed sales agents of the Publishers.

The requirement to arbitrate is not iron-clad. To ensure the clause is legal, companies must also let customers sue them in small claims court. A California man made the news last month when he did so — and won — against AT&T last month.

Update: Penguin provided the following statement:

Both Barnes & Noble and Amazon terms of sale contain express waivers by the customer of the right to seek a class action and require the customer to instead litigate his/her complaint in arbitration. Since B&N and Amazon are our agents, these TOS protect us, too. We’ve moved the court hearing the private class actions to enforce the arbitration clauses and dismiss the class claims.

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  1. Kessa Jo MialCara Friday, March 9, 2012

    If I bought any eBooks from Penguin, since they started being the seller of their eBooks, then any agreement I have with Amazon or Barnes & Noble, would not be with Penguin. They cut themselves out of any agreement I had with Amazon, when they made this new arrangement in 2010. Since they price their own eBooks, then they are the seller & any contract I may have or had with Amazon or B&N is void when it comes to the publisher’s that in affect, became the new seller. They did not make any new contract after they made this arrangement.

  2. What a strange time to make this claim. In a legitimate principal-agency relationship, the principal–e.g., Penguin–is expected to assume at least some risk, since technically it is directly selling (or licensing) the product to the consumer through an agent. By attempting to seek full protection behind its agents’ terms of service, it seems to me Penguin is tacitly admitting that this isn’t a true agency relationship–which in turn bolsters the argument that the publisher is misusing an agency relationship to fix prices.

  3. Penguin just keeps proving how little regard they have for their customers. The final straw for me was when they pulled all of their ebooks from libraries.

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