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Lavoho v. Apple and Publishers - eBook Price Fixing Complaint
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JS 44C/SDNYREV. 2/2014 44 CV 1768CIVIL COVER S
The JS-44 civilcover sheet and the information contained herein neither replace nor supplement the filingand service ofpleadings or other papers as required by law, except as provided by local rules of court. This form, approved by theJudicial Conference of the United States in September 1974, is required for use of the Clerk of Court for the purpose ofinitiating the civil docket sheet.
PLAINTIFFS
Lavoho, LLC, successor in interest to Diesel Ebooks, LLCDEFENDANTS
Apple Inc. et al.
ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER ATTORNEYS (IF KNOWN)Eric M. Creizman, Creizman LLC, 565 Fifth Avenue, New York, New York10017, T: (212) 972-0200; Maxwell M. Blecher &Jordan L. Ludwig (pro hacvice pending), Blecher Collins Pepperman & JoyeCAUSE OF ACTION (CITE THEU.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STATEMENT OF CAUSE)
(DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)
15 USC. 1, Section 1 of the Sherman Act. Unlawful restraint of trade
Has this action, case, or proceeding, orone essentially the same been previously filed in SDNY atany time? NotjYesLJJudge Previously AssignedIfyes, was this case Vol. L~] Invol. |~~| Dismissed NoD Yes If yes,give date & Case No.IS THIS AN INTERNATIONAL ARBITRATION CASE? No IE Yes (PLACEAN[x]IN ONEBOXONLY) NATURE OF SUIT
TORTS ACTIONS UNDER STATUTES
CONTRACT PERSONAL INJURY PERSONAL INJURY FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
I mo INSURANCE [ ]310 AIRPLANE (]362 PERSONAL INJURY - [ ]610 AGRICULTURE [ ] 422 APPEAL [ ]400 STATEI 1120 MARINE [ ]315 AIRPLANE PRODUCT MED MALPRACTICE [ ]620 OTHER FOOD & 28 USC 158 REAPPORTIONMENT[ ]130 MILLER ACT LIABILITY [ ] 365 PERSONAL INJURY DRUG [ 1423 WITHDRAWAL W410 ANTITRUST[ 1140 NEGOTIABLE [ ]320 ASSAULT, LIBEL & PRODUCT LIABILITY [ I 625 DRUG RELATED 28 USC 157 [1430 BANKS & BANKING
INSTRUMENT SLANDER [ ] 368 ASBESTOS PERSONAL SEIZURE OF [ ]450 COMMERCEM150 RECOVERY OF [ ]330 FEDERAL INJURY PRODUCT PROPERTY [ ]460 DEPORTATION
OVERPAYMENT & EMPLOYERS' LIABILITY 21 USC 881 PROPERTY RIGHTS I ]470 RACKETEER INFLUENFORCEMENT LIABILITY [ ] 630 LIQUOR LAWS ENCED & CORRUPTOF JUDGMENT []340 MARINE PERSONAL PROPERTY [ ]640 RR STRUCK [ ] 820 COPYRIGHTS ORGANIZATION ACT
I 1151 MEDICARE ACT []345 MARINE PRODUCT [ ]650 AIRLINE REGS [ ]830 PATENT (RICO)[ 1152 RECOVERY OF LIABILITY [ ] 370 OTHER FRAUD [ ]660 OCCUPATIONAL [ ] 840 TRADEMARK I I 480 CONSUMER CREDIT
DEFAULTED [ ]350 MOTOR VEHICLE [ ] 371 TRUTH IN LENDING SAFETY/HEALTH [ ] 490 CABLE/SATELLITE TVSTUDENT LOANS [ ]355 MOTOR VEHICLE [ ] 380 OTHER PERSONAL [ ]690 OTHER [ 1810 SELECTIVE SERVICE(EXCL VETERANS) PRODUCT LIABILITY PROPERTY DAMAGE SOCIAL SECURITY [ ]850 SECURITIES/
N153 RECOVERY OF [ ]360 OTHER PERSONAL [ ] 385 PROPERTY DAMAGE COMMODITIES/OVERPAYMENT INJURY PRODUCT LIABILITY LABOR [ ]861 HIA(1395ff) EXCHANGEOF VETERAN'S [ ] 862 BLACK LUNG (923) [ ]875 CUSTOMERBENEFITS [ 1710 FAIR LABOR [ ] 863 DIWC/DIWW (405(g)) CHALLENGE
[ ]160 STOCKHOLDERS STANDARDS ACT [ ] 864 SSID TITLE XVI 12 USC 3410SUITS [ ]720 LABOR/MGMT [ ] 865 RSI (405(g)) [ ]890 OTHER STATUTORY
[ ]190 OTHER PRISONER PETITIONS RELATIONS ACTIONSCONTRACT [ ]730 LABOR/MGMT [ 1891 AGRICULTURAL ACTS
I 1195 CONTRACT [ ]510 MOTIONS TO REPORTING & FEDERAL TAX SUITS [ ]892 ECONOMICPRODUCT ACTIONS UNDER STATUTES VACATE SENTENCE DISCLOSURE ACT STABILIZATION ACTLIABILITY 28 USC 2255 I ]740 RAILWAY LABOR ACT [ ]870 TAXES (U.S. Plaintiff or [ ]893 ENVIRONMENTAL
I 1196 FRANCHISE CIVIL RIGHTS [ ] 530 HABEAS CORPUS [ ]790 OTHER LABOR Defendant) MATTERS[ ] 535 DEATH PENALTY LITIGATION [ ] 871 IRS-THIRD PARTY I I 894 ENERGY
[]441 VOTING [ ] 540 MANDAMUS & OTHER I ]791 EMPL RET INC 26 USC 7609 ALLOCATION ACT[]442 EMPLOYMENT SECURITY ACT [ ]895 FREEDOM OF
REAL PROPERTY []443 HOUSING/ INFORMATION ACTACCOMMODATIONS IMMIGRATION [ ] 900 APPEAL OF FEE
(]210 LAND [ ]444 WELFARE PRISONER CIVIL RIGHTS DETERMINATIONCONDEMNATION [ ]445 AMERICANS WITH ( ]462 NATURALIZATION UNDER EQUAL
[ ]220 FORECLOSURE DISABILITIES - [ ] 550 CIVIL RIGHTS APPLICATION ACCESS TO JUSTICE[ ]230 RENT LEASE & EMPLOYMENT [ ] 555 PRISON CONDITION [ I 463 HABEAS CORPUS- [ ]950 CONSTITUTIONALITY
EJECTMENT [ ]446 AMERICANS WITH ALIEN DETAINEE OF STATE STATUTES[ ]240 TORTS TO LAND DISABILITIES -OTHER [ I 465 OTHER IMMIGRATIONI I 245 TORT PRODUCT
LIABILITY[ ]440 OTHER CIVIL RIGHTS
(Non-Prisoner)ACTIONS
[ ]290 ALL OTHERREAL PROPERTY
Check if demanded in complaint:
CHECK IF THIS IS A CLASS ACTIONUNDER F.R.C.P. 23
DEMAND $ OTHER
Check YES only if demanded in complaintJURY DEMAND: S YES NO
DO YOU CLAIM THIS CASE IS RELATED TO A CIVIL CASE NOW PENDING IN S.D.N.Y.?IF SO, STATE:
JUDGE Hon- Denise L Cote DOCKET NUMBER 1:13-CV-06516
NOTE: You must also submit at the time of filing the Statement of Relatedness form (Form IH-32).
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(PLACEAN x IN ONE BOX ONLY) ORIGIN13 1 Original fj2 Removed from D3 Remanded D 4 Reinstated or
Proceeding State Court from ReopenedI | a. all parties represented AppellateI I b. Atleast one
party Is pro se.
I I 5 Transferred from LZl 6 Multidistrict(Specify District) Litigation
l~l 7 Appeal toDistrictJudge fromMagistrate JudgeJudgment
(PLACEAN x IN ONE BOX ONLY) BASIS OF JURISDICTION 1 U.S. PLAINTIFF Q2 U.S. DEFENDANT M 3 FEDERAL QUESTION Q4 DIVERSITY
(U.S. NOT A PARTY)
CITIZENSHIP OF PRINCIPAL PARTIES (FOR DIVERSITY CASES ONLY)(Place an [X] in one box for Plaintiff and one box for Defendant)
IF DIVERSITY, INDICATECITIZENSHIP BELOW.
CITIZEN OR SUBJECT OF AFOREIGN COUNTRY
PTF DEF[ ]3 [ ]3
PTF DEFINCORPORATED and. PRINCIPAL PLACE [ ] 5 [ ] 5OF BUSINESS IN ANOTHER STATE
PTF DEFCITIZEN OF THIS STATE [ ] 1 ( ] 1
CITIZEN OF ANOTHER STATE [ ] 2 [ ] 2 INCORPORATED or PRINCIPAL PLACE [ ] 4 [ ] 4OF BUSINESS IN THIS STATE
FOREIGN NATION [ ]6 []6
PLAINTIFF(S) ADDRESS(ES) AND COUNTY(IES)
DEFENDANT(S) ADDRESS(ES) AND COUNTY(IES)
DEFENDANT(S) ADDRESS UNKNOWNREPRESENTATION IS HEREBY MADE THAT, AT THIS TIME, I HAVE BEEN UNABLE, WITH REASONABLE DILIGENCE, TO ASCERTAIN THE
RESIDENCE ADDRESSES OF THE FOLLOWING DEFENDANTS:
Check one: THIS ACTION SHOULD BEASSIGNED TO: WHITE PLAINS [X] MANHATTAN(DO NOT check either box if this a PRISONER PETITION/PRISONER CIVILRIGHTS COMPLAINT.)
DATE 03/14/2013 SIGNATURE OF ATTORNEY OF RECORD
RECEIPT #^yp^/n^l^
Magistrate Judge is to be designated by the Clerk of the Court.
Magistrate Judge
Ruby J. Krajick, Clerk of Court by . Deputy Clerk, DATED
UNITEDSTATES DISTRICT COURT (NEW YORK SOUTHERN)
ADMITTED TO PRACTICE IN THIS DISTRICT
[ ] N0 OS- 10/00H YES (DATE ADMITTED Mo. Yr. SWV)Attorney Bar Code # C 7 18 U
is so Designated.
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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
LAVOHO, LLC, successor in interest toDIESEL EBOOKS, LLC,
Plaintiff,
APPLE INC.; HACHETTE BOOK GROUP,INC.; HARPERCOLLINS PUBLISHERS,L.L.C.; VERLAGSGRUPPE GEORG VONHOLTZBRINCK GMBH; HOLTZBRTNCKPUBLISHERS, LLC d/b/a MACMILLAN;THE PENGUIN GROUP, A DIVISION OFPEARSON PLC; and SIMON &SCHUSTER, INC.
Defendants.
14 C? 1768CASE N(COMPLAINT FOR VIOLATIONS OF:
(1) THE SHERMAN ACT (15 U.S.C. 1)(2) THE DONNELLY ACT (N.Y. GEN.BUS. LAW 340)
JURY TRIAL DEMANDED
CO r*"
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in
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1. This Complaint is filed and these proceedings are instituted against the above-
named Defendants under Section 1 of the Sherman Antitrust Act (15 U.S.C. 1) and the
Donnelly Act (N.Y. Gen. Bus. Law 340) to recover damages for injuries to the business and
property of Plaintiff Lavoho, LLC, the successor in interest to Diesel eBooks, LLC ("Diesel").
INTRODUCTION
2. This case is about an already proven conspiracy to fix prices and reduce
competition in the rapidly expanding "e-book" industry between Apple and the Publisher
Defendants. An e-book is a book that is sold to consumers in electronic form to be read on a
variety of electronic devices. As was uncovered in the Department of Justice's investigation into
the conspiracy, the Publisher Defendants saw the rising demand for e-books and Amazon's low-
pricing practices as undermining the traditional business model in the industry. In a nutshell, the
Publisher Defendants did not want consumers to perceive the value of a new book as being only
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$9.99 (or lower). Accordingly, the Publisher Defendants joined forces with Applewho wasabout to enter the e-book marketto restrain price competition in the sale of e-books. As
phrased by Apple CEO Steve Jobs: "We'll go to [an] agency model, where you set the price, and
we get our 30%, and yes, the customer pays a little more, but that's what you want anyway."
Almost simultaneously, each of the publishers entered into a functionally identical agency
agreement with Apple that would "chang[e] the industry permanently." And it did. After the
Publisher Defendants executed the new agreements with Apple, each quickly imposed the same
agreements on all other retailers. This eliminated retailers' ability to compete on price. The
government's allegations, which it proved at trial, are explained in detail in this Complaint.
3. Consumers have paid tens ofmillions of dollars more for e-books since the price-
fixing conspiracycommenced. But Defendants' conduct did not solely result in injury to
consumers. Competition was also harmed because Defendants' price fixing artificially restrained
the ability of other e-book sellers to compete in the market. As Judge Cote found in her detailed
opinion: "Apple did not want to compete with Amazon (orany other e-book retailer) on price."
U.S. v. Apple Inc., 952 F. Supp. 2d 638, 647 (S.D.N.Y. 2013). Diesel was one such e-book
retailer.
4. Diesel did not have a dedicated e-reader such as the Kindle, Nook, or iPad.
Instead, the drawto Diesel's e-book store was that it pricedaggressively and usedproprietary
andunique real-time bundling software coupled witha desirable rewards program. These
practices incentivized consumers to purchase and download e-books from Diesel's website or
apps andthenaccess their e-books on another e-reader, mobile phone, personal computer, or
laptop computer. Diesel hadan applicationi.e., an "app"for the iOS andAndroid platforms.
Once Apple and the Publisher Defendants entered into theirprice-fixing agreement, however,
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Diesel was no longer able to offer its favorable pricing through bundling. If a bundle had a
single agency title in it, Diesel was no longer able to offer the bundle and its attendant favorable
pricing. After years of steady growth, in April 2010right after the imposition of agency
Diesel quickly went under for all intents and purposes.
5. Moreover, in order to further insulate itself from price competition and eliminate
transparency in e-book pricing, Apple would not allow Diesel and others to offer its app in the
Apple App Store without charging a 30 percent commission on all e-book sales, an amount that
was uneconomic and non-competitive because the agency agreements allowed for only 30
percent margins on sales of e-books. Diesel brings the present suit to vitiate Defendants'
unlawful and anticompetitive conduct.
THE PARTIES
6. Lavoho is an LLC organized and existing under the laws ofVirginia, having a
principal place of business in Richmond, Virginia. It is the successor in interest to Diesel
eBooks LLC, which is also an LLC organized and existing under the laws ofVirginia and also
had its principal place of business in Richmond, Virginia.
7. Apple Inc. has its principal place of business at 1 Infinite Loop, Cupertino, CA
95014. Among many other businesses, Apple, Inc. distributes e-books through its iBookstore.
8. Hachette Book Group, Inc. has its principal place of business at 237 Park Avenue,
New York, NY 10022. It publishes e-books and print books through publishers such as Little,
Brown, and Company and Grand Central Publishing.
9. HarperCollins Publishers L.L.C. has its principal place of business at 10 E. 53
Street, New York, NY 10022. It publishes e-books and print books through publishers such as
Harper and William Morrow.
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10. Holtzbrinck Publishers, LLC d/b/a/ Macmillan has its principal place of business
at 175 Fifth Avenue, New York, NY 10010. It publishes e-books and print books through
publishers such as Farrar, Straus and Giroux and St. Martin's Press. Verlagsgruppe Georg von
Holtzbrinck GmbH owns Holtzbrinck Publishers, LLC d/b/a/ Macmillan and has its principal
place of business at GansheidestraBe 26, Stuttgart 70184, Germany.
11. Penguin Group (USA), Inc. has its principal place of business at 375 Hudson
Street, New York, NY 10014. It publishes e-books and print books through publishers such as
The Viking Press and Gotham Books. Penguin Group (USA), Inc. is the United States affiliate
of The Penguin Group, a division ofPearson pic, which has its principal place of business at 80
Strand, London WC2R 0RL, United Kingdom.
12. Simon & Schuster, Inc. has its principal place of business at 1230 Avenue of the
Americas, New York, NY 10020. It publishes e-books and print books through publishers such
as Free Press and Touchstone.
JURISDICTION AND VENUE
13. This Court has subject matter jurisdiction over this action under Section 4 of the
Sherman Act, 15 U.S.C. 4 and 28 U.S.C. 1331, 1337(a), and 1345.
14. This Court has personal jurisdiction over each Defendant, and venue is proper in
the Southern District ofNew York under Section 12 of the Clayton Act, 15 U.S.C. 22 and 28
U.S.C. 1391, because each Defendant transacts business and is found within the Southern
Districtof New York. The U.S. componentofeach PublisherDefendant is headquartered in the
Southern District ofNew York, and acts in furtherance of the conspiracy occurred in this
District. Many thousands of the Publisher Defendants' e-books are and have been sold in this
District, including through Defendant Apple's iBookstore.
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INTERSTATE COMMERCE
15. Defendants are engaged in, and their activities substantially affect, interstate trade
and commerce. The Publisher Defendants sell e-books throughout the United States, and these
sales represent a substantial amount of interstate commerce. Forexample, in 2010, U.S.
consumers paidmore than$300 million for the Publisher Defendants' e-books. This amount
includes more than $40 million for e-books licensed through Defendant Apple's iBookstore.
UNNAMED CO-CONSPIRATORS
16. Various persons, who are knownand unknown to Diesel,and not namedas
defendants in this action, includingsenior executivesof the PublisherDefendantsand Apple,
have participated as co-conspirators withDefendants in the offense alleged and haveperformed
acts and made statements in furtherance of the conspiracy.
FACTUAL ALLEGATIONS
I. THE CONSPIRACY AS PROVEN BY THE U.S. GOVERNMENT AGAINSTAPPLE
17. The following is taken from the U.S. Departmentof Justice's Complaint filed on
April 11,2012 in this Court. The Publisher Defendants settledwith the DOJ prior to trial. The
DOJ prevailed in a bench trial against Apple before the HonorableJudge Cote. Judge Cote
issued the Court's detailed Opinion and Order on July 10, 2013 and entered its Judgment on
September5, 2013. The restraint alleged by Diesel is identical in virtually all respects to the one
proven by the DOJ.
A. The Publishing Industry
1. Print Books
18. Authors submit books to publishers in manuscript form. Publishers edit
manuscripts, print and bind books, provide advertising and related marketing services, decide
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when a book should be released for sale, anddistribute books to wholesalers and retailers.
Publishers also determine the cover price or"list price" ofa book, and typically that price
appears on the book's cover.
19. Retailers purchase print books directly from publishers, orthrough wholesale
distributors, and resell them toconsumers. Retailers typically purchase print books under the
"wholesale model." Under thatmodel, retailers paypublishers approximately one-halfof the list
price ofbooks, take ownership ofthe books, then resell them to consumers atprices ofthe
retailer's choice. Publishers have sold print books to retailers through the wholesale model for
over 100years and continueto do so today.
2. E-books
20. E-books are published inelectronic formats. E-book publishers avoid some ofthe
expenses incurred inproducing and distributing print books, including most manufacturing
expenses, warehousing expenses, distribution expenses, and costs ofdealing with unsold stock.
21. Consumers purchase e-books through websites of e-book retailers or through
applications loaded onto their reading devices. Such electronic distribution allows e-book
retailers to avoid certain expenses they incurwhenthey sellprintbooks, including most
warehousing expenses and distribution expenses.
22. From its very small base in 2007 at the time of Amazon's Kindle launch, the e-
bookmarket has exploded, registering triple-digit sales growth eachyear. E-books now
constitute at least tenpercent of general interest fiction and non-fiction books (commonly knownas "trade" books1) sold in the United States and are widely predicted to reach at least 25 percentof U.S. trade book sales within two to three years.
1Non-trade e-books include electronicversions of children's picture books and academictextbooks, reference materials, and other specializedtexts that typically are publishedby separate
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3. Publisher Defendants and "The $9.99 Problem"
23. The Publisher Defendants compete against each other for sales of trade e-books to
consumers. Publishers bid against one another for print- and electronic-publishing rights to
content that they expect will be most successful in the market. They also compete against each
other in bringing those books to market. For example, in addition to price-setting, they create
cover art and other on-book sales inducements, and also engage in advertising campaigns for
some titles.
24. The Publisher Defendants are five of the six largest publishers of trade books in
the United States. They publish a vast majority of their newly released titles as both print books
and e-books. Publisher Defendants compete against each other in the sales of both trade print
books and trade e-books.
25. When Amazon launched its Kindle device, it offered newly released and
bestselling e-books to consumers for $9.99. At that time, the Publisher Defendants routinely
wholesaled those e-books for about that same price, which typically was less than the wholesale
price of the hardcover versions of the same titles, reflecting publisher cost saving associated with
the electronic format. From the time of its launch, Amazon's e-book distribution business has
been consistently profitable, even when substantially discounting some newly released and
bestselling titles.
26. To compete with Amazon, other e-book retailers often matched or approached
Amazon's $9.99-or-less prices for e-book versions of new releases and New York Times
bestsellers. As a result of that competition, consumers benefited from Amazon's $9.99-or-less e-
book prices even if they purchased e-books from competing e-book retailers.
imprints from trade books, often sold through separate channels, and are not reasonablysubstitutable for trade e-books.
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27. The Publisher Defendants feared that $9.99 would become the standard price for
newly released and bestsellinge-books. For example,one Publisher Defendant's CEO
bemoaned the "wretched $9.99 price point" and Penguin USA CEO David Shanks worried that
e-book pricing "can't be $9.99 for hardcovers."
28. The Publisher Defendants believed the low prices for newly released and
bestselling e-books were disrupting the industry. The Amazon-led $9.99 retail price point for the
most popular e-books troubled the PublisherDefendantsbecause, at $9.99, most of these e-book
titles were priced substantially lower than hardcoverversions of the same title. The Publisher
Defendants were concerned these lower e-book prices would lead to the "deflation" of hardcover
book prices, with accompanying declining revenues for publishers. The Publisher Defendants
also worried that if $9.99 solidified as the consumers' expected retail price for e-books, Amazon
and other retailers would demand that publishers lower their wholesale prices, further
compressing publisher profit margins.
29. The Publisher Defendants also feared that the $9.99 price point would make e-
books so popular that digital publishers could achieve sufficient scale to challenge the major
incumbent publishers' basic business model. The Publisher Defendants were especially
concerned that Amazon was well positioned to enter the digital publishing business and thereby
supplant publishers as intermediaries between authors and consumers. Amazon had, in fact,
taken steps to do so, contracting directly with authors to publish their works as e-booksat a
higher royalty rate than the Publisher Defendants offered. Amazon's move threatened the
Publisher Defendants' traditional positions as the gate-keepers of the publishing world. The
Publisher Defendants also feared that other competitive advantages they held as a result ofyears
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of investments in their print book businesseswould erode and, eventually,become irrelevant, as
e-book sales continued to grow.
4. Publisher Defendants Recognize They Cannot Solve "The $9.99Problem" Alone
30. Each Publisher Defendant knew that, acting alone, it could not compel Amazon to
raise e-book prices and that it was not in its economic self-interest to attempt unilaterally to raise
retail e-book prices. Each Publisher Defendant relied on Amazon to market and distribute its e-
books, and each Publisher Defendant believed Amazon would leverage its position as a large
retailer to preserve its ability to compete and would resist any individual publisher's attempt to
raise the prices at which Amazon sold that publisher's e-books. As one Publisher Defendant
executive acknowledged Amazon's bargaining strength, "we've always known that unless other
publishers follow us, there's no chance of success in getting Amazon to change its pricing
practices." In the same email, the executive wrote, "without a critical mass behind us Amazon
won't 'negotiate,' so we need to be more confident ofhow our fellow publishers will react...."
31. Each Publisher Defendant also recognized that it would lose sales if retail prices
increased for only its e-books, while the other Publisher Defendants' e-books remained
competitively priced. In addition, higher prices for just one publisher's e-books would not
change consumer perceptions enough to slow the erosion of consumer-perceived value of books
that all the Publisher Defendants feared would result from Amazon's $9.99 pricing policy.
B. Defendants' Unlawful Activities
32. Beginning no later than September 2008, the Publisher Defendants' senior
executives engaged in a series of meetings, telephone conversations and other communications
in which they jointly acknowledged to each other the threat posed by Amazon's pricing strategy
and the need to work collectively to end that strategy. By the end of the summer of 2009, the
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PublisherDefendants had agreed to act collectively to force up Amazon's retail prices and
thereafter considered and implemented various meansto accomplish that goal, including moving
under the guise of a joint venture. Ultimately, in late 2009, Apple and the Publisher Defendantssettledon the strategy that workedreplacing the wholesalemodel with an agency model that
gave the Publisher Defendants the power to raise retail e-book prices themselves.
33. The evidence showing conspiracy is substantial and includes:
Practices facilitating a horizontal conspiracy. The Publisher Defendantsregularly communicated with each other in private mails to each other toexchange conversations, both in person and on the telephone, and in e-mails to each other to exchange sensitive information and assurance ofsolidarity to advance the ends of this conspiracy
Direct evidence of a conspiracy. The Publisher Defendants directlydiscussed, agreed to, and encouraged each other to collective action toforce Amazon to raise its retail e-book prices.
Recognition of illicit nature of communications. Publisher Defendantstook steps to conceal their communications with one another, includinginstructions to "double delete" e-mail and taking other measures to avoidleaving a paper trail.
Acts contrary to economic interests. It would have been contrary to theeconomic interests of any Publisher Defendant acting alone to attempt toimpose agency on all of its retailers and then raise its retail e-book prices.For example, Penguin Group CEO John Makinson reported to his parentcompany board ofdirectors that "the industry needs to develop a commonstrategy" to address the threat "from digital companies whose objectivemay be to disintermediate traditional publishers altogether" because it"will not be possible for any individual publisher to mount an effectiveresponse," and Penguin later admitted that it would have beeneconomically disadvantaged if it "was the only publisher dealing withApple under the new business model."
Motive to enter the conspiracy, including knowledge or assurances thatcompetitors also will enter. The Publisher Defendants were motivated bya desire to maintain both the perceived value of their books and their ownposition in the industry. They received assurances from both each otherand Apple that they all would move together to raise retail e-book prices.Apple was motivated to ensure that it would not face competition fromAmazon's low-price retail strategy.
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Abrupt, contemporaneous shift from past behavior. Prior to January 23,2010, all Publisher Defendants sold their e-books under the traditionalwholesale model; by January 25, 2010, all Publisher Defendants hadirrevocably committed to transition all of their retailers to the agencymodel (and Apple had committed to sell e-books on a model inconsistentwith the way it sells the vast bulk of the digitalmedia it offers in its iTunesstore). On April 3, 2010, as soon as the Apple Agency Agreementssimultaneously became effective, all Publisher Defendants immediatelyused their new retail pricing authority to raise the retail prices of theirnewly released and bestselling e-books to the commonostensiblemaximum prices contained in their Apple Agency Agreements.
1. The Publisher Defendants Recognize a Common Threat
34. Startingno later than Septemberof2008 and continuingfor at least one year, the
Publisher Defendants' CEOs (at times joined by one non-defendant publisher's CEO) met
privately as a group approximately once per quarter. These meetings tookplace in private dining
rooms ofupscale Manhattan restaurants and were used to discuss confidential business and
competitive matters, including Amazon's e-bookretailing practices. No legal counsel was
present at any of these meetings.
35. In September 2008, Penguin Group CEO John Makinson was joined by
Macmillan CEO John Sargent and the CEOs of the other four large publishers at a dinner
meeting in "The Chefs Wine Cellar," a private room at Picholene. One of the CEOs reported
that business matters were discussed.
36. In January 2009, the CEO of one Publisher Defendant, a United States subsidiary
of a European corporation, promised his corporate superior, the CEO of the parent company, that
he would raise the future of e-books and Amazon's potential role in that future at an upcoming
meeting or publisher CEOs. Later that month, at a dinner meeting hosted by Penguin Group
CEO John Makinson, again in "The Chefs Wine Cellar" at Picholene, the same group of
publisher CEOs met once more.
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37. On or about June 16,2009, Mr. Makinson again met privately with other
PublisherDefendantCEOs and discussed, inter alia, the growth of e-books and Amazon's role in
that growth
38. On or aboutSeptember 10, 2009, Mr. Makinson onceagainmet privately with
other Publisher Defendant CEOs and the CEO of one non-defendant publisher in a private room
of a differentManhattanrestaurant, Alto. They discussed the growth of e-books and complained
about Amazon's role in that growth.
39. In addition to the CEO dinner meetings, Publisher Defendants' CEOs and other
executives met in-person, one-on-one to communicate aboute-books multiple times overthe
course of 2009 and into 2010. Similar meetings took place in Europe, including meetings in the
fall of 2009 between executives of Macmillan parent company Verlagsgruppe Georg von
Holtzbrinck GmbH and executives of another Publisher Defendant's parent company.
MacmillanCEO John Sargentjoined at least one of these parent companymeetings40. These private meetings provided the PublisherDefendants' CEOs the opportunity
to discuss how they collectively could solve "the $9.99 problem."
2. Publisher Defendants Conspire to Raise E-book Prices Under theGuise of Joint Venture Discussions
41. While each Publisher Defendant recognized that it could not solve "the $9.99
problem" by itself, collectively the Publisher Defendants accounted for nearly half of Amazon's
e-book revenues, and by refusing to compete with one another for Amazon's business, the
Publisher Defendants could force Amazon to accept the Publisher Defendants' new contract
terms and to change its pricing practices.
42. The Publisher Defendants thus conspired to act collectively, initially in the guise
ofjoint ventures. These ostensible joint ventures were not meant to enhance competition by
12
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bringing to market products or services that the publishers could not offer unilaterally, but rather
were designed as anticompetitive measures to raise prices.
43. All five Publisher Defendants agreed in 2009 at the latest to act collectively to
raise retail prices for the most popular e-books above $9.99. One CEO of a Publisher
Defendant's parent company explained to his corporate superior in a July 29, 2009 e-mail
message that "[i]n the USA and the UK, but also in Spain and France to a lesser degree, the 'top
publishers' are in discussions to create an alternative platform to Amazon for e-books. The goal
is less to compete with Amazon as to force it to accept a price level higher than 9.99.... I am in
NY this week to promote these ideas and the movement is positive with [the other four Publisher
Defendants]." (Translated from French).
44. Less than a week later, in an August 4, 2009 strategy memo for the board of
directors of Penguin's ultimate parent company, Penguin Group CEO John Makinson conveyed
the same message:
Competition for the attention of readers will be most intense fromdigital companies whose objective may be to disintermediatetraditional publishers altogether. This is not a new threat but wedo appear to be on a collision course with Amazon, and possiblyGoogle as well. It will not be possible for any individual publisherto mount an effective response, because of both the resourcesnecessary and the risk of retribution, so the industry needs todevelop a common strategy. This is the context for thedevelopment of the Project Z initiatives [joint ventures] in Londonand New York.
3. Defendants Agree To Increase and Stabilize Retail E-book Prices byCollectively Adopting an Agency Model
45. To raise e-book prices, the Publisher Defendants also began to consider in late
2009 selling e-books under an "agency model" that would take away Amazon's ability to set low
retail prices. As one CEO of a Publisher Defendant's parent company explained in a
December 6, 2009 e-mail message, "[o]ur goal is to force Amazon to return to acceptable sales
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prices through theestablishment of agency contracts in the USA.... To succeed ourcolleagues
must know that we entered the fray and follow us." (Translated from French).
46. Apple's entry into the e-book business provided a perfect opportunity for
collective action to implement the agency model and use it to raise retail e-book prices. Apple
initially contemplated selling e-books throughthe existing wholesale model, whichwas similar
to the manner in which Apple sold the vast majority of the digital media it offered in its iTunes
store. On February 19, 2009, Apple Vice President of Internet Services Eddy Cue explained to
Apple CEO Steve Jobs in an e-mail, "[a]t this point, it would be very easy for us to competeand
I think trounce Amazon by opening up our own ebook store." In addition to considering
competitive entry at that time, though, Apple also contemplated illegally dividing the digital
content world with Amazon, allowing each to "own the category" of its choiceaudio/video to
Apple and e-books to Amazon.
47. Apple soon concluded, though, that competition from other retailersespecially
Amazonwould prevent Apple from earning its desired 30 percent margins on e-book sales.
Ultimately, Apple, together with the Publisher Defendants, set in motion a plan that would
compel all non-Apple e-book retailers also to sign onto agency or else, as Apple's CEO put it,
the Publisher Defendants all would say, "we're not going to give you the books."
48. The executive in charge of Apple's inchoate e-books business, Eddy Cue,
telephoned each Publisher Defendant and Random House on or around December 8, 2009 to
schedule exploratory meetings in New York City on December 15 and December 16. Hachette
and HarperCollins took the lead in working with Apple to capitalize on this golden opportunity
for the Publisher Defendants to achieve their goal of raising and stabilizing retail e-book prices
above $9.99 by collectively imposing the agency model on the industry.
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49. It appears that Hachette and HarperCollins communicated with each other about
moving to an agency model during the brief window between Mr. Cue's first telephone calls to
the Publisher Defendants and his visit to meet with their CEOs. On the morning of
December 10, 2009, a HarperCollins executive added to his calendar an appointment to call a
Hachette executive at 10:50 AM. At 11:01 AM, the Hachette executive returned the phone call,
and the two spoke for six minutes. Then, less than a week later in New York, both Hachette and
HarperCollins executives told Mr. Cue in their initial meetings with him that they wanted to sell
e-books under an agency model, a dramatic departure from the way books had been sold for over
a century.
50. The other Publisher Defendants also made clear to Apple that they "certainly" did
not want to continue "the existing way that they were doing business," i.e., with Amazon
promoting their most popular e-books for $9.99 under a wholesale model.
51. Apple saw a way to turn the agency scheme into a highly profitable model for
itself. Apple determined to give the Publisher Defendants what they wanted while shielding
itself from retail price competition and realizing margins far in excess of what e-book retailers
then averaged on each newly released or bestselling e-book sold. Apple realized that, as a result
of the scheme, "the customer" would "pay[] a little more."
52. On December 16,2009, the day after both companies' initial meetings with
Apple, Penguin Group CEO John Makinson had a breakfast meeting at a London hotel with the
CEO of another Publisher Defendant's parent company. Consistent with the Publisher
Defendants' other efforts to conceal their activities, Mr. Makinson's breakfast companion wrote
to his U.S. subordinate that he would recount portions of his discussion with Mr. Makinson only
by telephone.
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53. By the time Apple arrived for a second round of meetings during the week of
December 21, 2009, the agency model had become the focus of its discussions with all of the
Publisher Defendants. In these discussions, Apple proposed that the Publisher Defendants
require all retailers of their e-books to accept the agency model. Apple thereby sought to ensure
that it would not have to compete on retail prices. The proposal appealed to the Publisher
Defendants because wresting pricing control from Amazon and other e-book retailers would
advance their collusive plan to raise retail e-book prices.
54. The Publisher Defendants acknowledged to Apple their common objective to end
Amazon's $9.99 pricing. As Mr. Cue reported in an e-mail message to Apple's CEO Steve Jobs,
the three publishers with whom he had met saw the "plus" of Apple's position as "solv[ing the]
Amazon problem." The "negative" was that Apple's proposed retail pricestopping out at
$12.99 for newly released and bestselling e-bookswere a "little less than [the publishers]
would like." Likewise, Mr. Jobs later informed an executive of one of the Publisher Defendant's
corporate parents that "[a]ll major publishers" had told Apple that "Amazon's $9.99 price for
new releases is eroding the value perception of their products in customer's minds, and they do
not want this practice to continue for new releases."
55. As perhaps the only company that could facilitate their goal of raising retail e-
book prices across the industry, Apple knew that it had significant leverage in negotiations with
Publisher Defendants. Apple exercised this leverage to demand a thirty percent commissiona
margin significantly above the prevailing competitive margins for e-book retailers. The
Publisher Defendants worried that the combination ofpaying Apple a higher commission than
they would have liked and pricing their e-books lower than they wanted might be too much to
bear in exchange for Apple's facilitation of their agreement to raise retail e-book prices.
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Ultimately, though, they convincedApple to allow them to raise prices high enough to make the
deal palatable to them.
56. As it negotiated with the Publishers Defendants in December 2009 and January
2010, Apple kept each Publisher Defendant informed of the status of its negotiations with the
other Publisher Defendants. Apple also assured the Publisher Defendants that its proposals were
the same to each and that no deal Apple agreed to with one publisher would be materially
different from any deal it agreed to with another publisher. Apple thus knowingly served as a
critical conspiracy participant by allowing the Publisher Defendants to signal to one another both
(a) which agency terms would comprise an acceptable means of achieving their ultimate goal of
raising and stabilizing retail e-book prices, and (b) that they could lock themselves into this
particular means of collectively achieving that goal by all signing their Apple Agency
Agreement.
57. Apple's Mr. Cue e-mailed each Publisher Defendant between January 4, 2010,
and January 6, 2010 an outline of what he tabbed "the best approach for e-books." He reassured
Penguin USA CEO David Shanks and other Publisher Defendant CEOs that Apple adopted the
approach "[a]fter talking to all the other publishers." Mr. Cue sent substantively identical e-mail
messages and proposals to each Publisher Defendant.
58. The outlined proposal that Apple circulated after consulting with each Publisher
Defendant contained several key features. First, as Hachette and HarperCollins had initially
suggested to Apple, the publisher would be the principal and Apple would be the agent for e-
book sales. Consumer pricing authority would be transferred from retailers to publishers.
Second, Apple's proposal mandated that every other retailer of each publisher's e-books
Apple's direct competitorsbe forced to accept the agency model as well. As Mr. Cue wrote,
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"all resellers ofnew titles need to be in agency model." Third, Apple would receive a 30 percent
commission for each e-book sale. And fourth, each Publisher Defendant would have identical
pricing tiers for e-books sold through Apple's iBookstore.
59. On January 11,2010, Apple e-mailed its proposed e-book distribution agreement
to all Publisher Defendants. As with the outlined proposals Apple sent earlier in January, the
proposed e-book distribution agreements were substantially the same. Also on January 11,2010,
Apple separately e-mailed to Penguin and two other Publisher Defendants charts showing how
the Publisher Defendant's bestselling e-books would be priced at $12.99the ostensibly
maximum price under Apple's then-current price tier proposalin the iBookstore.
60. The proposed e-book distribution agreement mainly incorporated the principles
Apple set out in its e-mail messages of January 4 through January 6, with two notable changes.
First, Apple demanded that the Publisher Defendants provide Apple their complete e-book
catalogs and that they not delay the electronic release of any title behind its print release.
Second, and more important, Apple replaced the express requirement that each publisher adopt
the agency model with each of its retailers with an unusual most favored nation ("MFN") pricing
provision. That provision was not structured like a standard MFN in favor of a retailer, ensuring
Apple that it would receive the best available wholesale price. Nor did the MFN ensure Apple
the Publisher Defendants would not set a higher retail price on the iBookstore than they set on
other websites where they controlled retail prices. Instead, the MFN here required each
publisher to guarantee that it would lower the retail price of each e-book in Apple's iBookstore
to match the lowest price offered by any other retailer, even if the Publisher Defendant did not
control that other retailer's ultimate consumer price. That is, instead of an MFN designed to
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protect Apple's ability to compete, this MFN was designed to protect Apple from having to
compete on price at all, while still maintaining Apple's 30 percent margin.
61. The purpose of these provisions was to work in concert to enforce the
Defendants' agreement to raise and stabilize retail e-book prices. Apple and the Publisher
Defendants recognized that coupling Apple's right to all of their e-books with its right to demand
that those e-books not be priced higher on the iBookstore than on any other website effectively
required that each Publisher Defendant take away retail pricing control from all other e-book
retailers, including stripping them of any ability to discount or otherwise price promote e-books
out of the retailer's own margins. Otherwise, the retail price MFN would cause Apple's
iBookstore prices to drop to match the best available retail price of each e-book, and the
Publisher Defendants would receive only 70 percent of those reduced retail prices. Price
competition by other retailers, if allowed to continue, thus likely would reduce e-book revenues
to levels the Publisher Defendants could not control or predict.
62. In negotiating the retail price MFN with Apple, "some of [the Publisher
Defendants]" asserted that Apple did not need the provision "because they would be moving to
an agency model with [the other e-book retailers,]" regardless. Ultimately, though, all
Defendants agreed to include the MFN commitment mechanism.
63. On January 16, 2010, Apple, via Mr. Cue, offered revised terms to the Publisher
Defendants that again were identical in substance. Apple modified its earlier proposal in two
significant ways. First, in response to publisher requests, it added new maximum pricing tiers
that increased permissible e-book prices to $16.99 or $19.99, depending on the books' hardcover
list price. Second, Apple's new proposal mitigated these price increases somewhat by adding
special pricing tiers for e-book versions of books on the New York Times fiction and non-fiction
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bestseller lists. For e-book versions of bestsellers bearing list prices of $30 or less, Publisher
Defendants could set a price up to $12.99; for bestsellers bearing list prices between$30 and
$35, the e-book price cap would be $14.99. In conjunctionwith the revised proposal,Mr. Cue
set up meetings for the next week to finalize agreements with the PublisherDefendants.
64. Each Publisher Defendant required assurances that it would not be the only
publisherto sign an agreementwith Apple that would compel it either to take pricing authority
from Amazon or to pull its e-books from Amazon. The Publisher Defendants continued to fear
that Amazon would act to protect its ability to price e-books at $9.99 or less if any one of them
acted alone. Individual Publisher Defendants also feared punishment in the marketplace if only
its e-books suddenly became more expensive at retail while other publishers continued to allow
retailers to compete on price. As Mr. Cue noted, "all of them were very concerned about being
the only ones to sign a deal with us." Penguin explicitly communicated to Apple that it would
sign an e-book distribution agreement with Apple only if at least three of the other "major[]"
publishers did as well. Apple supplied the needed assurances.
65. While the Publisher Defendants were discussing e-book distribution terms with
Apple during the week of January 18, 2010, Amazon met in New York City with a number of
prominent authors and agents to unveil a new program under which copyright holders could take
their e-books directly to Amazoncutting out the publisherand Amazon would pay royalties
of up to 70 percent, far in excess of what publishers offered. This announcement further
highlighted the direct competitive threat Amazon posed to the Publisher Defendants' business
model. The Publisher Defendants reacted immediately. For example, Penguin USA CEO David
reported being "really angry" after hav[ing] read [Amazon's] announcement." After thinking
about it for a day, Mr. Shanks concluded, "[o]n Apple I am now more convinced that we need a
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viable alternative to Amazon or this nonsense will continue and get much worse." Another
decisionmaker stated he was "p****d" at Amazon for starting to compete directly against the
publishers and expressed his desire "to screw Amazon."
66. To persuade one of the Publisher Defendants to stay with the others and sign an
agreement, Apple CEO Steve Jobs wrote to an executive of the Publisher Defendant's corporate
parent that the publisher had only two choices apart from signing the Apple Agency Agreement:
(i) accept the status quo ("Keep going with Amazon at $9.99"); or (ii) continue with a losing
policy of delaying the release of electronic versions of new titles ("Hold back your books from
Amazon"). According to Jobs, the Apple deal offered the Publisher Defendants a superior
alternative path to the higher retail e-book prices they sought: "Throw in with Apple and see if
we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99."
67. In addition to passing information through Apple and during their private dinners
and other in-person meetings, the Publisher Defendants frequently communicated by telephone
to exchange assurances of common action in attempting to raise the retail price of e-books.
These telephone communications increased significantly during the two-month period in which
the Publisher Defendants considered and entered the Apple Agency Agreements. During
December 2009 and January 2010, the Publisher Defendants' U.S. CEOs placed at least 56
phone calls to one another. Each CEO, including Penguin's Shanks and Macmillan's Sargent,
placed at least seven such phone calls.
68. The timing, frequency, duration, and content of the Publisher Defendant CEOs'
phone calls demonstrate that the Publisher Defendants used them to seek and exchange
assurances of common strategies and business plans regarding the Apple Agency Agreements.
For example, in addition to the telephone calls already described in this complaint:
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Near the time Apple first presented the agency model, one PublisherDefendant's CEO used a telephone callostensibly made to discuss amarketing joint ventureto tell Penguin USA CEO David Shanks that"everyone is in the same place with Apple."
After receiving Apple's January 16, 2010 revised proposal, executives ofseveral Publisher Defendants responded to the revised proposal andmeetings by, again, seeking and exchanging confidential information. Forexample, on Sunday, January 17, one Publisher Defendant's CEO used hismobile phone to call another Publisher Defendant's CEO and talk forapproximately ten minutes. And on the morning of January 19, PenguinUSA CEO David Shanks had an extended telephone conversation with theCEO of another Publisher Defendant.
On January 21, 2010, the CEO of one Publisher Defendant's parentcompany instructed his U.S. subordinate via e-mail to find out Apple'sprogress in agency negotiations with other publishers. Four minutes afterthat e-mail was sent, the U.S. executive called another PublisherDefendant's CEO, and the two spoke for over eleven minutes.
On January 22, 2010, at 9:30 a.m., Apple's Cue met with one PublisherDefendant's CEO to make what Cue hoped would be a "final go/no-godecision" about whether the Publisher Defendant would sign an agreementwith Apple. Less than an hour later, the Publisher Defendant's CEO madephone calls, two minutes apart, to two other Publisher Defendants' CEOs,including Macmillan's Sargent. The CEO who placed the calls admittedunder oath to placing them specifically to learn if the other two PublisherDefendants would sign with Apple prior to Apple's iPad launch.
On the evening of Saturday, January 23, 2010, Apple's Cue e-mailed hisboss, Steve Jobs, and noted that Penguin USA David Shanks "want[ed] anassurance that he is 1 of 4 before signing." The following Mondaymorning, at 9:46 a.m., Mr. Shanks called another Publisher Defendant'sCEO and the two talked for approximately four minutes. Both Penguinand the other Publisher Defendant signed their Apple Agency Agreementslater that day.
69. On January 24, 2010, Hachette signed an e-book distribution agreement with
Apple. Over the next two days, Simon & Schuster, Macmillan, Penguin, and HarperCollins all
followed suit and signed e-book distribution agreements with Apple. Within these three days,
the Publisher Defendants agreed with Apple to abandon the longstanding wholesale model for
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selling e-books. The Apple Agency Agreements took effect simultaneously onApril 3, 2010
with the release of Apple's new iPad.
70. The final versionof the pricingtiers in the Apple Agency Agreements contained
the $12.99 and $14.99 pricepoints for bestsellers, discussed earlier, and also established prices
for all othernewly released titlesbasedon the hardcover list priceof the same title. Although
couched as maximum retail prices, the price tiers in fact established the retail e-bookprices to be
charged by Publisher Defendants.
71. By entering the AppleAgency Agreements, each PublisherDefendant effectively
agreed to require all of their e-bookretailers to accept the agency model. Both Appleand the
Publisher Defendants understood the Agreements would compel the Publisher Defendants to
take pricing authority from all non-Apple e-bookretailers. A February 10,2010 presentation by
one PublisherDefendant applaudedthis result (emphasis in original): "The Apple agency model
deal means that we will have to shift to an agency model with Amazon which [will]
strengthen our control over pricing."
72. Apple understood that the final Apple Agency Agreements ensured that the
Publisher Defendants would raise their retail e-book prices to the ostensible limits set by the
Apple price tiers not only in Apple's forthcoming iBookstore, but on Amazon.comand all other
consumer sites as well. When asked by a Wall StreetJournal reporter at the January 27, 2010
iPad unveiling event, "Why should she buy a book for ... $14.99 from your device when she
could buy one for $9.99 from Amazon on the Kindle or from Barnes & Noble on the Nook?"
Apple CEO Steve Jobs responded, "that won't be the case .... the prices will be the same."
73. Apple understood that the retail price MFN was the key commitment mechanism
to keep the Publisher Defendants advancing their conspiracy in lockstep. Regarding the effect of
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the MFN, Apple executive Pete Alcorn remarked in the context of the European roll-out of the
agency model in the spring of 2010:
I told [Apple executive Keith Moerer] that I think he and Eddy[Cue] made it at least halfway to changing the industrypermanently, and we should keep the pads on and keep fighting forit. I might regret that later, but right now I feel like it's a giant winto keep pushing the MFN and forcing people off the [A]mazonmodel and onto ours. If anything, the place to give is the pricing -long run, the mfn is more important. The interesting insight in themeeting was Eddy's explanation that it doesn't have to be thatbroad - any decent MFN forces the model
74. Within the four months following the signing of the Apple Agency Agreements,
and over Amazon's objection, each Publisher Defendant had transformed its business
relationship with all of the major e-book retailers from a wholesale model to an agency model
and imposed flat prohibition against e-book discounting or other price competition on all non-
Apple e-book retailers.
75. For example, after it signed its Apple Agency Agreement, Macmillan presented
Amazon a choice: adopt the agency model or lose the ability to sell e-book versions of new
hardcover titles for the first seven months of their release. Amazon rejected Macmillan's
ultimatum and sought to preserve its ability to sell e-book versions of newly released hardcover
titles for $9.99. To resist Macmillan's efforts to force it to accept either the agency model or
delayed electronic availability, Amazon effectively stopped selling Macmillan's print books and
e-books.
76. When Amazon stopped selling Macmillan titles, other Publisher Defendants did
not view the situation as an opportunity to gain market share from a weakened competitor.
Instead, they rallied to support Macmillan. For example, the CEO of one Publisher Defendant's
parent company instructed the Publisher Defendant's CEO that "[Macmillan CEO] John Sargent
needs our help!" The parent company CEO explained, "M[acm]illan have been brave, but they
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are small. We need to move the lines. And I am thrilled to know how A[mazon] will react
against 3 or 4 of the big guys."
77. The CEO ofone Publisher Defendant's parent company assured Macmillan CEO
John Sargent ofhis company's support in a January 31, 2010 email: "I can ensure you that you
are not going to find your company alone in the battle." The same parent company CEO also
assured the head of Macmillan's corporate parent in a February 1 email that "others will enter the
battle field!" Overall, Macmillan received "hugely supportive" correspondence from the
publishing industry during Macmillan's effort to force Amazon to accept the agency model.
78. As its battle with Amazon continued, Macmillan knew that, because the other
Publisher Defendant, via the Apple Agency Agreements, had locked themselves into forcing
agency on Amazon to advance their conspiratorial goals, Amazon soon would face similar edicts
from a united front of Publisher Defendants. And Amazon could not delist the books of all five
Publisher Defendants because they together accounted for nearly half of Amazon's e-book
business. Macmillan CEO John Sargent explained the company's reasoning: "we believed
whatever was happening, whatever Amazon was doing here, they were going to face - they're
going to have more of the same in the future one way or another." Another Publisher Defendant
similarly recognized that Macmillan was not acting unilaterally but rather was "leading the
charge on moving Amazon to the agency model."
79. Amazon quickly came to fully appreciate that not just Macmillan but all five
Publisher Defendants had irrevocably committed themselves to the agency model across all
retailers, including taking control of retail pricing and thereby stripping away any opportunity for
e-book retailers to compete on price. Just two days after it stopped selling Macmillan titles,
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Amazoncapitulatedand publicly announcedthat it had no choice but to accept the agency
model, and it soon resumed selling Macmillan's e-books and print book titles.
4. Defendants Further the Conspiracy by Pressuring Another PublisherTo Adopt the Agency Model
80. When a company takes a pro-competitive action by introducing a new product,
lowering its prices, or even adopting a new business model that helps it sell more product at
better prices, it typically does not want its competitors to copy its action, but prefers to maintain
a first-mover or competitive advantage. In contrast, when companies jointly take collusive
action, such as instituting a coordinated price increase, they typically want the rest of their
competitors to join them in that action. Because collusive actions are not pro-competitive or
consumer friendly, any competitor that does not go along with the conspirators can take more
consumer friendly actions and see its market share rise at the expense of the conspirators. Here,
the Defendants acted consistently with a collusive arrangement, and inconsistently with a pro-
competitive arrangement, as they sought to pressure another publisher (whose market share was
growing at the Publisher Defendants' expense after the Apple Agency Contracts became
effective) to join them.
81. Penguin appears to have taken the lead in these efforts. Its U.S. CEO, David
Shanks, twice directly told the executives of the holdout major publisher about his displeasure
with their decision to continue selling e-books on the wholesale model. Mr. Shanks tried to
justify the actions of the conspiracy as an effort to save brick-and-mortar bookstores and
criticized the other publishers for "not helping" the group. The executives of the other publishers
responded to Mr. Shanks's complaints by explaining their objections to the agency model.
82. Mr. Shanks also encouraged a large print book and e-book retailer to punish the
other publishers for not joining Defendants' conspiracy. In March 2010, Mr. Shanks sent an e-
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mail message to an executive of the retailer complaining that the publisher "has chosen to stay on
their current model and will allow retailers to sell at whatever price they wish." Mr. Shanks
argued that "[s]ince Penguin is looking out for [your] welfare at what appears to be great costs to
us, I would hope that [you] would be equally brutal to Publishers who have thrown in with your
competition with obvious disdain for your welfare.... I hope you make [the publisher] hurt like
Amazon is doing to [the Publisher Defendants]."
83. When the third-party retailer continued to promote the non-defendant publisher's
books, Mr. Shanks applied more pressure. In a June 22, 2010 email to the retailer's CEO, Mr.
Shanks claimed to be "baffled" as to why the retailer would promote that publisher's books
instead ofjust those published by "people who stood up for you."
84. Throughout the summer of 2010, Apple also cajoled the holdout publisher to
adopt agency terms in line with those of the Publisher Defendants, including on a phone call
between Apple CEO Steve Jobs and the holdout publisher's CEO. Apple flatly refused to sell
the holdoutpublisher's e-books unless and until it agreed to an agency relationship substantially
similarto the arrangementbetween Apple and the Publisher Defendantsdefined by Apple
Agency Agreements.
5. Conspiracy Succeeds at Raising and Stabilizing Consumer E-bookPrices
85. The ostensible maximum prices included in the Apple Agency Agreements' price
schedule represent, in practice, actual e-book prices. Indeed, at the time the Publisher
Defendants snatched retail pricing authority away from Amazon and other e-book retailers, not
one of them had built an internal retail pricing apparatus sufficientto do anything other than set
retailpricesat the Apple Agency Agreements' ostensible caps. Once their agency agreements
took effect, the Publisher Defendants raised e-book prices at all retail outlets to the maximum
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price level within each tier. Prior to the PublisherDefendants entering into settlement
agreements, for two years they continued setting e-book retail prices according to the Apple
price tiers and set the retail prices for the electronicversions of all or nearly all of their
bestselling hardcover titles at the ostensiblemaximumprice allowed by those price tiers.
86. The Publisher Defendants' collective adoptionof the Apple Agency Agreements
allowedthem (facilitatedby Apple) to raise, fix, and stabilize retail e-book prices in three steps:
(a) they took away retail pricing authority from retailers; (b) they then set retail e-book prices
according to the Apple price tiers; and (c) they then exported the agency model and higher retail
prices to the rest of the industry, in part to comply with the retail price MFN included in each
Apple Agency Agreement.
87. Defendants' conspiracyand agreementto raise and stabilize retail e-book prices
by collectively adopting the agency model and Apple price tiers led to an increase in the retail
prices ofnewly released and bestsellinge-books. Prior to the Defendants' conspiracy,
consumers benefittedfrom price competitionthat led to $9.99 prices for newly released and
bestselling e-books. Almost immediately after Apple launched its iBookstore in April 2010 and
the Publisher Defendants imposed agency model pricing on all retailers, the Publisher
Defendants' e-book prices for the most newly released and bestsellinge-books rose to either
$12.99 or $14.99.
88. Defendants' conspiracy and agreement to raise and stabilize retail e-bookprices
by collectively adopting the agency model and Appleprice tiers for their newly released and
bestselling e-books also led to an increase in average retail prices of the balanceof Publisher
Defendants' e-book catalogs, their so-called "backlists." Now that the Publisher Defendants
control the retailprices of e-booksbut Amazon maintains control of its print book retail
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pricesPublisher Defendants' e-book prices sometimes are higher than Amazon's prices for
print versions of the same titles.
II. DIESEL IS CRIPPLED BY DEFENDANTS' PRICE-FIXING CONSPIRACY
A. Diesel's Business
89. The Diesel e-book store was founded in 2005 by Scott Redford. In founding
Diesel, Mr. Redford aimed to fill a perceived void in the e-book marketthat is, provide
consumers with a niche retailer to purchase e-books from. In 2005, the market for e-books was
still budding and was ripe for entry and expansion from new retail competitors. From early on,
Diesel cultivated relationships with the "Big Six" publishers and recruited key personnel with e-
book industry expertise that resided in the New York metro area where the publishers were
based.
90. While Diesel operated as a normal e-book storeoffering over 3 million titles in
its e-book storethe cornerstone of its business model was discounted bundling. Diesel
invested in and developed proprietary software that would allow its e-bookstore to "shrink wrap"
up to six digital e-books and sell them as a bundle to the consumer. Diesel would discount the
cost of each book sold in the bundle and would sometimes partially defer its profit from the
bundle by depositing reward points in customers' accounts. Books could be bundled according
to book series, theme, character, time period, or authoramong other things. Notably, unlike
bundles that were previously offered by publisherswhere content from multiple e-books was
aggregated and converted into one digital file for saleDiesel developed software technology
that would assemble multiple covers and book descriptions from different publishers into a
single presentation for the customer (essentially "shrink wrapping"). Customers could then add
this bundle to the cart with a single click, but the books would be downloaded as separate e-
books. Additionally, to facilitate consumer involvement in the process, Diesel encouraged
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consumers to propose single- or multi-author bundles with customer-created bundle titles and
descriptions. If Diesel approved thebundle, it deposited $1.50 or $3.00 in rewards money in the
consumer'saccountand recognized the bundle's creatorby name and geography on the e-book
display page. Several of the most popular bundles came from consumer ideas. In addition to
increased revenue from bundle sales, Diesel's bundles introduced customers to newtitles they
mayotherwise not have considered. Even if customers did not purchase the bundle, they would
often navigate from the bundle page to purchase individual titles.
91. To encourage customer loyalty and repeat business, Diesel also offered a
desirable rewards program for its customers enabling themto collect and redeem points on future
e-book purchases. UnderDiesel's program, consumers received on average $.035 cents for
every $1.00 spenton over 100,000 titles and $.15 for every approved e-book review. When
coupled withits bundling discounts, Diesel'sprices were highly competitive; its e-book prices
werearoundor belowthe prevailing rate. Diesel's bundles provided intangible benefits to
consumers as wellnamely, introducing them to new authors.
92. Once it entered the market in 2005, Diesel enjoyed steady growth every singleyear. Within six months, Diesel posted modest profits, and revenue continued to increase.
Diesel offered over 3 million titles and had over 200,000 customers in its database. Given its
growth pattern for several years and increasing popularity with consumers, Diesel planned a
large expansion in2011. Diesel's business model, which was predicated onitsdiscounting,
bundling, and its rewards program, proved to be working because it was desirable and in
consumers' interest. Despite not having a dedicated e-reader, Diesel had apps for the iOS and
Android platforms, and in addition, consumers could read Diesel e-books on their Barnes &
Noble Nook, Kobo eReader, Sony eReader, Google Reader, andAdobe desktop software.
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93. In the months leading up to April 2010before agency was imposedin
exchange for an equity stake in Diesel, an interested software company proposed a multimillion
dollar investment into the construction of the industry's first ever social e-book reader, which
would have been Diesel branded. The software company began investing time and money into
design and planning for the venture. But when the Defendants forced the industry to change to
agency and Diesel's business model was decimated, Diesel's potential suitor quickly cancelled
its plans. Additionally, before agency, Diesel had begun constructing a self-publishing platform
known as "PubDesk" that would have enabled small publishers and authors to directly upload
their content to Diesel's e-book store.
94. In short, Diesel was formed and launched in the nascent period of the e-book
industry when competition was vibrant and businesses were not yet entrenched. Capitalizing on
these conditions, Diesel offered low prices and unique retail features that enabled it to
successfully capture significant business and grow steadily. If Defendants' conspiracy did not
turn the industry on its head, Diesel fully expected to continue growing by competing vigorously.
B. Defendants Force Agency Agreements On Diesel Precluding It FromCompeting In The Market
95. The Defendants had twin aims in carrying out the conspiracy: in addition to
raising the price for e-books, Apple and the Publisher Defendants hoped to destroy retail price
competition. As Judge Cote found, "Apple did not want to compete with Amazon (or any other
e-book retailer) on price." Apple, 952 F. Supp. 2d at 547. The Department of Justice proved that
the agreements "destroyed" competition by "removing the ability of retailers to set the prices of
their e-books and compete with each other on price" and "reliev[ing] Apple of the need to
compete on price," among other things. Id. at 694. Diesel's harm, described below, flows
directlyfrom the destructionof retail price competition, not from raised e-book prices.
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96. After the Defendants hatched their conspiracy, Diesel was required to remove all
of the Publisher Defendants' titles from its websites because it did not yet have an agency
agreement with them. Because Diesel had forged close relationships with the Publisher
Defendants, it signed agency agreements with Macmillan, HarperCollins, and Random House.
Before Diesel went out of business, it was in the process of negotiating with Hachette and
Penguin. Although Diesel did not want to agree to the agency agreements, it had virtually no
choice but to sign them or the Publisher Defendants would no longer permit Diesel to sell their e-
books; even Amazon, with its more considerable market power, could not sway the Publisher
Defendants. Even if Diesel could have somehow convinced one of the Publisher Defendants to
allow it to drop below the tiered prices that Defendants set, the series of MFN clauses would still
have insulated Apple from any price competition. Accordingly, just as Amazon was forced to
raise prices as a result of Defendants' price-fixing agreement, Diesel was forced to stop
discounting its prices, stop including any of the Publisher Defendants' titles in any bundle, and
stop allowing customers to earn rewards for agency e-books. If there was a single agency title in
a six-book bundle, the bundle had to be removed from Diesel's offerings. These forced changes
completely derailed Diesel's successful business.
97. Unlike Amazon or Barnes & Noble, Diesel did not have widespread international
brand recognition. The primary incentive to purchase an e-book from Diesel over Amazon,
Apple, or Barnes & Noble was Diesel's favorable pricing, bundling, and rewards program.
When Defendants eliminated Diesel's ability to offer consumers these perks, Diesel's ability to
compete was crippled. As the Department of Justice already proved, the effect ofDefendants'
conspiracy was to not only deprive consumers of favorable e-book pricing but to also preclude
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retailers from establishing a foothold in the market through competitionbased on price and
innovation.
98. Lastly, Diesel had developedand launched an app for users to read Diesel e-books
on iOS devices. Diesel envisioned vast cross-platform support for its e-books, where consumers
could read their e-books on an array of devices. But in an effort to eradicate retail competition
and price transparency, in 2011,Apple specifically modified its policyto prohibitother e-book
sellers from linking to their websites to allow consumers to purchase e-books. So ifan e-book
seller wanted to sell an e-book through its app, it had to pay Apple a 30 percent fee on top of
what it was already paying the Publisher. Of course, the practical effect of such a policy was to
make the iBookstore the only practical app to purchase books from (or send consumers through
hoops to get e-books through their computers, which they could then download and import).
Other nascent competitors, such as iFlow were foreclosed from selling as soon as Apple
implemented its new policy.
99. As a direct result of the conspiracy and Apple's effective prohibition of using the
iOS platform, Diesel's years of steady growth abruptly ceased and its revenue and profit both
plunged. Without an ability to compete based on price and innovative retail methodsupon
which it predicated its business modelDiesel has not recovered. Diesel presently does a
fraction of the business it once conducted before agency and is currently negotiating to sell its
assets for pennies on the dollar.
100. In sum, Defendants' industry-wide conspiracy forced Diesel in line with everyone
else. It became unable to compete by distinguishing itself through offering attractive prices,
bundling, rewards programs, or offering attractive cross-platform support. Without the ability to
distinguish itself in any meaningful way, Diesel had no chance of competing with several large
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international conglomerates offering the same items at the same prices that were prescribed by an
industry-wide conspiracy.
CLAIMS FOR RELIEF
COUNT ONE
(Against All Defendants for Violations of 15 U.S.C. 1)
101. Beginning no later than 2009, and continuing to at least late 2012 when a few of
the Publisher Defendants settled with the DOJ, Defendants and their co-conspirators have
combined and conspired to unreasonably restrain interstate trade and commerce, constituting a
violation of Section 1 of the Sherman Act, 15 U.S.C. 1.
102. Defendants conspired and agreed to raise, fix, and stabilize retail e-book prices in
order to end price competition among e-book retailers and to limit retail price competition among
the Publisher Defendants. Defendants accomplished this by collectively agreeing to adopt and
adhere to functionally identical methods of selling e-books and by setting price schedules.
103. In reaching their unlawful agreement in restraint of trade, some or all of the
Defendants:
a. Shared their business information, plans, and strategies in order to
formulate ways to raise retail e-book prices;
b. Assured each other of support in attempting to raise retail e-book prices;
c. Employed ostensible joint venture meetings to disguise their attempts to
raise retail e-book prices;
d. Fixed the method of and formulas for setting retail e-book prices;
e. Fixed tiers for retail e-book prices;
f. Eliminated the ability of e-book retailers to fund retail e-book price
decreases out of their own margins; and
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g. Raised the retail prices of their newly released and bestselling e-books to
the agreed prices - the ostensible price caps - contained in the pricing schedule oftheir Apple
Agency Agreements.
104. Defendants' agreement andconspiracy constitutes a per se violation of Section 1
of the Sherman Act because it is an anticompetitive agreement to raise, fix, and stabilize prices in
the e-book industry. The agreement or conspiracy was meant to eliminate price competition
among e-book retailers, including Diesel.
105. Defendants' agreement andconspiracy has resulted in anticompetitive effects on
consumers in the e-books marketby depriving consumers of the benefits of price competition
and innovation among e-book retailers suchas Diesel. Because of Defendants' unlawful
restraint of trade, Diesel is no longerable to offer, and consumers are no longerable to purchase
e-books at discounted prices, in bundles, or with rewards fromDiesel's rewards program.
Moreover, retail innovationhas also been suppressed. For example, the conspiracyprecludes
Dieselfrom offering e-books in bundles or maintaining its rewards program. Defendants'
agreement or conspiracy constitutes an unreasonable restraint of trade in violation of Section 1 of
the Sherman Act, 15 U.S.C. 1.
106. Where, as here, Defendants have engaged in a per se violation of Section 1 of the
ShermanAct, no allegationswith respect to the relevant product market, geographic market, or
market power are required. To the extent such allegations may otherwise be necessary, the
relevantproduct market for the purposes of this action is trade e-books. The anticompetitive acts
at issue in this case directly affect the sale of trade e-books to consumers. No reasonable
substitute exists for e-books. There are no technological alternatives to e-books, thousands of
which can be stored on a single small device. E-books can be stored and read on electronic
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devices, while print books cannot. E-books can be located, purchased, and downloaded
anywhere a customer has an internet connection, while print books cannot. Industry firms and
the public also view e-books as a separate market segment from print books, and the Publisher
Defendants were able to impose and sustain a significant retail price increase for their trade e-
books.
107. The relevant geographic market is the United States. The rights to license e-
books are granted on territorial bases, with the United States typically forming its own territory.
E-book retailers typically present a unique storefront to U.S. consumers, often with e-books
bearing different retail prices than the same titles would command on the same retailer's foreign
websites.
108. The Publisher Defendants possess market power in the market for trade e-books.
The Publisher Defendants successfully imposed and sustained a significant retail price increase
for their trade e-books. Collectively, they create and distribute a wide variety of popular e-
books, regularly comprising over halfof the New York Times fiction and non-fiction bestseller
lists. Collectively, they provide a critical input to any firm selling trade e-books to consumers.
Any retailer selling trade e-books to consumers would not be able to forgo profitably the sale of
the Publisher Defendants' e-books.
109. Defendants' agreement and conspiracy has had and will continue to have
anticompetitive effects, including:
a. Increasing the retail prices of trade e-books;
b. Eliminating competition on price among e-book retailers;
c. Restraining competition on retail price among the Publisher Defendants;
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d. Restraining competition among the Publisher Defendants for favorable
relationships with e-book retailers;
e. Constraining innovationamong e-book retailers as more particularly
alleged in paragraphs 93 and 98;
f. Entrenching incumbent publishers' favorable positionin the sale and
distribution of print books by slowing the migration from print books to e-books;
g. Making more likely express or tacit collusion among publishers; and
h. Reducing competitive pressure on print book prices.
110. Defendants' agreement and conspiracy is not reasonably necessary to accomplish
anyprocompetitive objective, or, alternatively, its scope is broader than necessary to accomplishany such objective.
111. Diesel, as well as consumers, have suffered antitrust injury from Defendants'
conduct and have antitrust standing to pursue this action. Competition was diminished because
independent retailers were no longerable to compete with large international conglomerates by
offeringattractiveprices or unique retail innovations. This resulted in less consumer choice.
Because each of the Publisher Defendants forced a functionally identical agency agreement on
Diesel both interbrand and intrabrand competition were reduced or eliminated. Because of this
demonstrable harm to competition, Diesel was crippled and effectively put out of business.
112. Diesel's injury flows directly from Defendants' anticompetitive agreement in the
market for e-books because it precluded Diesel from being able to compete by offering lower
prices or retail innovations to consumers. Without the incentive of lower prices or retail
innovations, Diesel lacked the goodwill and recognition to expand in the market.
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113. Because this case is based in material part on matters complained of in United
States ofAmerica v. Apple, Inc., Case No. 12-CV-2826 in the United States District Court for the
Southern District of New York, filed on April 11, 2012, the running of the statute of limitations
has been suspended since that filing date by reason of Section 5 of the Clayton Act (15 U.S.C.
16(i))-
114. The trial judgment in the aforementioned case, which was entered on September
5,2013, constitutes prima facie evidence that Apple violated the antitrust laws in the ways and
means described by Judge Cote's Opinion of July 10,2013. 15 U.S.C. 16(a).
COUNT TWO
(Against AH Defendants for Violations of N.Y. Gen. Bus. Law 340)
115. Beginning no later than 2009, and continuing to at least late 2012 when a few of
the Publisher Defendants settled with the DOJ, Defendants and their co-conspirators have
combined and conspired to unreasonably restrain interstate trade and commerce, constituting a
violation ofNew York General Business Law section 340, otherwise known as the Donnelly Act.
116. Defendants conspired and agreed to raise, fix, and stabilize retail e-book prices in
order to end price competition among e-book retailers and to limit retail price competition among
the Publisher Defendants. Defendants accomplished this by collectively agreeing to adopt and
adhere to functionally identical methods of selling e-books and by setting price schedules.
117. In reaching their unlawful agreement in restraint of trade, some or all of the
Defendants:
a. Shared their business information, plans, and strategies in order to
formulate ways to raise retail e-book prices;
b. Assured each other of support in attempting to raise retail e-book prices;
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c. Employed ostensible joint venture meetings to disguise their attempts to
raise retail e-book prices;
d. Fixed the method of and formulas for setting retail e-book prices;
e. Fixed tiers for retail e-book prices;
f. Eliminated the ability of e-book retailers to fund retail e-book price
decreases out of their own margins; and
g. Raised the retail prices of their newly released and bestselling e-books to
the agreed prices - the ostensible price caps - contained in the pricing schedule of their Apple
Agency Agreements.
118. Defendants' agreement and conspiracy constitutes a per se violation of the
Donnelly Act because it is an anticompetitive agreement to raise, fix, and stabilize prices in the
e-book industry. The agreement or conspiracy was meant to eliminate price competition among
e-book retailers, including Diesel.
119. Defendants' agreement and conspiracy has resulted in anticompetitive effects on
consumers in the e-books market by depriving consumers of the benefits of price competition
and innovation among e-book retailers such as Diesel. Because of Defendants' unlawful
restraint of trade, Diesel is no longer able to offer, and consumers are no longer able to purchase
e-booksat discountedprices, in bundles, or with rewards from Diesel's rewards program.
Moreover, retail innovation has also been suppressed. For example, the conspiracy precludes
Diesel from offering e-books in bundles or maintaining its rewards program. Defendants'
agreement or conspiracy constitutes an unreasonable restraint of trade in violation of the
Donnelly Act.
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120. Where, as here, Defendants have engaged in a per se violation of the Donnelly
Act, no allegations with respect to the relevant product market, geographic market, or market
power are required. To the extent such allegations may otherwise be necessary, the relevant
product market for the purposes of this action is trade e-books. The anticompetitive acts at issue
in this case directly affect the sale of trade e-books to consumers. No reasonable substitute exists
for e-books. There are no technological alternatives to e-books, thousands of which can be
stored on a single small device. E-books can be stored and read on electronic devices, while
print books cannot. E-books can be located, purchased, and downloaded anywhere a customer
has an internet connection, while print books cannot. Industry firms and the public also view e-
books as a separate market segment from print books, and the Publisher Defendants were able to
impose and sustain a significant retail price increase for their trade e-books.
121. The relevant geographic market is the United States. The rights to license e-
books are granted on territorial bases, with the United States typically forming its own territory.
E-book retailers typically present a unique storefront to U.S. consumers, often with e-books
bearing different retail prices than the same titles would command on the same retailer's foreign
websites.
122. In addition to the conspiracy's impact on interstate commerce, Defendants'
conduct had a demonstrable impact on intrastate commerce in New York. All five of the
Publisher Defendants have their principal place of business in New York, and much of the
conspiracy between the Publisher Defendants and Apple was hatched and implemented in New
York. For example, the Publisher Defendants met regularly in New York, and Apple's Eddy
Cue traveled to New York to negotiate with the Publisher Defendants. The Publisher Defendants
each conduct significant business in New York because they sell e-books to end users in New
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York. Apple also conducts significant business in New York through the sale of its products on
which consumers read e-books. Finally, consumers read e-books in New York. In short, the
conspiracy had a direct and substantial impact on intrastate commerce in New York.
123. The