The now defunct Intimate Bookshop of North Carolina has filed suit against Barnes & Noble and Borders Books alleging that the chains used their market power to pressure publishers for special discounts and terms unavailable to other retailers.
According to documents filed in the case by Intimate’s attorney, Carl Person, the chains received an effective discount of 60 percent off the cover price, compared to only about 40-46 percent given to independent bookstores. In many cases, there were no cost savings to publishers to warrant the added discounts. Under the federal Robinson-Patman Act (RPA), it is illegal for retail businesses to use their market power to exact discounts that are not available to other retailers, unless there are legitimate differences in the supplier’s costs (e.g., shipping in volume).
Borders Books and Barnes & Noble are larger than the top ten publishers combined and control about half of all U.S. bookstore sales. Both factors give the chains enormous clout when dealing with publishers.
The court papers outline dozens of discriminatory benefits the two chains obtained from publishers. For example, the chains received a 4 to 8 percent “co-op allowance” based on their purchases from the previous year. Co-op funds are paid to bookstores by publishers to fund advertisements and other promotions of their books. But, while independents must rigorously document their expenditures to receive these funds, the chains provided no proof of having spent the funds on promotion and in many cases simply absorbed the fees, according to the suit. Publishers Weekly has noted that co-op funds have become a “profit center” for the chains. Barnes & Noble took in $113 million in co-op money during the first quarter of 1997 alone.
The chains also demanded and received a 1 percent discount for shipping returned books back from a central warehouse, although publishers complained there was no cost savings. Houghton Mifflin told Borders, “We find that receiving returns from your warehouse less time efficient and more costly than receiving returns directly from stores. It is therefore very difficult for us to justify an additional increase to our costs when the new system does not benefit us.”
Other discriminatory advantages detailed by the suit include taking the maximum carton-quantity discount when only a few copies of a title were ordered; discounting publishers’ invoices for violating shipping rules unilaterally imposed by the chains; and demanding special discounts for new store openings or expansions. The chains also routinely deferred payment of invoices beyond published terms. While publishers block shipment to independents with outstanding invoices, this was not the case with Borders and Barnes & Noble.
Typically, the chains find one publisher willing to pay a new discount or other compensation, and then insist that other publishers provide the same terms. At one point, Borders wrote to Houghton Mifflin, “We demand Houghton Mifflin recognize the. . . profitability of the Borders account through purchasing terms that reflect the added value we provide. If Houghton is unable to meet the discount standards. . . we will be forced to minimize our support of your titles.”
The allegations are based on depositions taken by Person and thousands of pages of documents compiled by the American Booksellers Association (ABA) during a similar lawsuit that ended last April when the chains paid the ABA a $4.7 million settlement, but admitted no wrongdoing.