Three independent bookstores have filed a class action suit against Amazon (s AMZN) and all of the big-six publishers, alleging that the proprietary digital rights management tools Amazon uses on ebooks serve to create a monopoly. The indies, represented by Los Angeles antitrust firm Blecher & Collins, say publisher contracts calling for the use of this DRM, which like most forms of DRM prohibits readers from copying ebooks or reading them on non-authorized devices, restrain ebook sales and that Amazon “has unlawfully monopolized or attempted to monopolize the market for ebooks in the United States.”
The case was filed in New York’s Southern District court (which also oversaw the Department of Justice’s antitrust suit on ebook pricing) on February 15 and was first noticed by the Huffington Post Wednesday afternoon. The named plaintiffs are Manhattan-based Posman Books, Book House of Stuyvesant Plaza and Fiction Addiction of Greenville, South Carolina; they seek to represent “all other similarly situated independent brick-and-mortar bookstores.”
The filing cites estimated market share for Kindle, Barnes & Noble’s Nook (s BKS) and Apple’s iBookstore (s AAPL) as evidence that Amazon has a “dominant position” in the ebook market. The estimates cited are generally accepted in the publishing industry — over 60 percent for Amazon’s Kindle e-readers, around 25 percent for Nook and under 10 percent for the iBookstore (though some believe that Apple’s market share has grown ). The filing says Nook is Kindle’s “only substantial competition” but, in reference to recent news and earnings reports, notes Barnes & Noble is “experiencing financial difficulties and will be downsizing by closing a significant portion of their brick-and-mortar bookstores.” The filing doesn’t mention Kobo, but Posman, Book House and Fiction Addiction all sell Kobo ebooks through the company’s partnership with the American Booksellers Association.
To be clear, Barnes & Noble, Kobo and Apple also sell ebooks with DRM on them. Barnes & Noble and Kobo use Adobe (s ADBE) DRM, and Apple uses its own proprietary DRM on ebooks — but that appears not to be at issue in this case because of Apple’s reportedly small ebook market share. (The filing does mention that Apple doesn’t use DRM on music.) Rather, the filing takes issue with Amazon’s proprietary DRM, AZW: “Ebooks with the AZW DRM can only be read on a Kindle device or on another device enabled with a Kindle application…the Kindle app works solely with ebooks sold by Amazon.” While the case names only the big-six publishers as defendants, Amazon places its DRM on nearly all of its ebooks from all publishers.
The filing says that big-six publishers, through their contracts with Amazon that allow for Amazon’s proprietary DRM on their ebooks, “unreasonably restrain trade and commerce in the market for ebooks” in violation of the Sherman Act,” and claims “consumers have been injured because they have been deprived of choice and also denied the benefits of innovation and competition resulting from the foreclosure of independent brick-and-mortar bookstores.”
Most of the filing, though, is spent on Amazon, which the plaintiffs accuse of purposely creating a monopoly on ebooks in the United States. According to the filing:
The aforesaid conduct and acts of Amazon and the big six were engaged in by Amazon with the purpose and intent: (1) to injure, suppress, destroy and irreparably harm Plaintiffs and the other Class Members in the relevant market; (2) to monopolize the market for the sale of ebooks in the United States; (3) to reduce or eliminate sales of ebooks by Plaintiffs and the other Class Members; (4) to control prices; (5) to reduce the variety of offerings that would otherwise be available to consumers; and (6) to unlawfully monopolize trade and commerce in said relevant market.
The plaintiffs seek an injunction “prohibiting Amazon and the big six from publishing and selling ebooks with device and app specific DRMs and further requiring the big six to allow independent brick-and-mortar bookstores to directly sell open-source DRM ebooks published by the big six.” It’s unclear what the plaintiffs mean by “open-source DRM.” Alyson Decker, the Blecher & Collins attorney overseeing the case, said she couldn’t comment specifically on the technicalities, but it seems as if the plaintiffs want some kind of DRM that would operate across platforms.
Decker told me that independent bookstores’ agreements to sell ebooks through Kobo aren’t sufficient: “My understanding is that the Big Six do not currently have any direct agreements for ebooks with independent brick and mortar bookstores comparable to the agreements they have entered into with them for traditional books. While some independent brick and mortar bookstores are able to sell ebooks for Kobo, my understanding is that that agreement is with Kobo and not directly with the big six.” Many independent bookstores may lack the technical knowledge and infrastructure to be able to sell ebooks straight from the publishers, but the filing doesn’t get into details on exactly how such a system would work.