In late April, the American Booksellers Association (ABA) settled its antitrust case against Barnes & Noble and Borders Books for $4.7 million. The lawsuit charged the two chains with using their market power to bully publishers and wholesalers into providing special discounts and favorable terms that were not made available to independent bookstores. Such anticompetitive practices are illegal under the federal Robinson-Patman Act.
The two chains are larger than the top ten publishers combined and account for about one-quarter of all book sales. The lawsuit uncovered a wealth of evidence documenting how the chains had used their market power to obtain special deals:
* Barnes & Noble purchased books through a sham wholesaling arrangement with a small book wholesaler called Bookazine. Under this arrangement, B&N acquired books directly from publishers at Bookazine’s wholesaler discounts, less payment of a kickback to Bookazine. B&N employees knew this was illegal. In an email, one employee wrote that the terms of the agreement “CANNOT be put in writing for legal reasons.”
* Both Barnes & Noble and Borders received 42-43 percent discounts from Ingram Book Company, the largest and most widely used book wholesaler in the country, in circumstances in which independent bookstores received only a 40 percent discount. The two companies also received “incentive” payments from Ingram worth an additional one to five percent on purchases.
* Ingram requires independent bookstores to pay their bills ten days after the end of the month in order to receive a two percent discount, whereas Ingram has permitted Barnes & Noble and Borders to pay their bills 25 days after the end of the month and still take the discount.
One of the more chilling pieces of evidence presented in the case was an internal memo in which a high-level Borders executive wrote that one publisher “claims to have leveled the playing field, what they don’t realize is that in a couple of years there may only be a couple of players left who will dictate the game on their own terms.”
Although the ABA had substantial evidence against the chains, they agreed to settle the case largely because of the judge. During the trial, Judge William Orrick indicated that he saw little wrong with the chains pressuring wholesalers for the special deals. “Isn’t that what capitalism is all about?” he asked one witness.
In a pre-trial ruling, Judge Orrick had ruled that the ABA could not seek damages, only legal costs, on the basis that the association had not presented enough concrete evidence of the financial harm caused by the chains’ illegal practices.
His ruling had two significant impacts on the case. One was that, in a damages trial, the chains’ practices back to 1994 would have been at issue. Under the ruling, however, only the chains’ current practices were relevant. Evidence showed that many of the more egregious abuses no longer exist, largely as a result of the lawsuit. The ruling also meant that the case would be tried by a judge, instead of a jury.
The ABA felt the decision was unfounded and reversible on appeal, but this would have required several more years of costly litigation. The ABA has spent nearly $18 million on the lawsuit.
Despite the early settlement, the lawsuit did achieve its primary objective. It exposed and brought to an end many of the discriminatory deals that fed the two chains’ expansion over the last decade. “The terms available today to independent bookstores, from discounts to free-freight policies to the narrowing gap between chains’ and independents’ terms, are a far cry from what they were seven years ago when the ABA began litigating for a level playing field,” noted ABA President Neal Coonerty.
