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.