Pearson Education, Inc. et al v. Allen Air Conditioning Co. et al
Filing
134
OPINION & ORDER re: 115 MOTION to Dismiss First Amended Counterclaims filed by John Wiley & Sons, Inc., Pearson Education, Inc.: For the reasons set forth above, the Publishers' motion to dismiss the Amended Counterclaims is GRANTED. The Clerk of Court is directed to terminate the motion at ECF No. 115 and to terminate this action. (Signed by Judge Katherine B. Forrest on 5/22/2014) (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------------)(
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
DATE FILED:MAY
2 2 2014
PEARSON EDUCATION, INC. and
JOHN WILEY & SONS, INC.,
08 Civ. 6152 (KBF)
Plaintiffs,
OPINION & ORDER
-v-
ALLEN AIR CONDITIONING CO., et al.,
Defendants.
------------------------------------------------------------KATHERINE B. FORREST, District Judge:
)(
Before this Court is plaintiffs and Counterclaim-defendants Pearson
Education, Inc.'s ("Pearson") and John Wiley & Sons, Inc.'s ("Wiley") (together,
"Publishers") motion to dismiss defendant and Counterclaim-plaintiff Ganghua
Liu's ("Liu") first amended Counterclaims. The amended Counterclaims asserts
antitrust violations arising under Sections 1 and 2 of the Sherman Act, as well as
state law claims for tortious interference with existing and prospective business
relationships. (See Defendant Ganghua Liu's First Amended Counterclaims
("FAC")
iii! 102-138, Dec. 4, 2013, ECF No. 108.)
Liu, a seller of foreign editions of books published by Pearson and Wiley,
alleges that they, along with other publishers, agreed to engage in a variety of
anticompetitive conduct against importers of foreign editions of publications (such
as Liu) for the purpose of restraining competition and maintaining monopoly
positions in their publications. The centerpiece of the alleged conduct relates to
coordinated litigation efforts against Liu and others. Liu also asserts that Pearson
1
and Wiley agreed between themselves and with others to enter into an agreement
with an online retailer, Valorebooks.com, to refuse to deal with Liu. Finally, Liu
asserts that Pearson and Wiley also entered into agreements with other online
retailers such as Amazon.com and Half.com to refuse to deal with her.
Liu's allegations fail to state a cognizable antitrust claim. There is nothing
unlawful regarding the Publishers' coordinated commencement of litigation to
protect their copyrights from a similar course of conduct - even if that litigation
fails. Such activity is protected by the Noerr-Pennington doctrine and does not
otherwise constitute an antitrust violation. Liu's remaining allegations of concerted
action fail for a number of reasons - but as a threshold matter, they all lack the
required specificity as to the "who, what, when, and where" of the various alleged
agreements. Without such supporting facts, the allegations are no more than
speculation that something nefarious must have been (and still be) afoot. Such
suspicions are insufficient to state a claim for an antitrust violation.
For the reasons set forth below, the Publisher's motion is GRANTED.
I.
FACTUAL ALLEGATIONS
For purposes of evaluating a motion to dismiss, the Court accepts as true all
well-pleaded factual allegations and draws all reasonable inferences in plaintiffs
favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). While the
amended Counterclaims contain a variety of assertions, many of which are repeated
2
at different times, only the following are relevant to resolution of the instant
motion. 1
Liu imports foreign editions of various textbooks. The amended
Counterclaims allege that Liu was a student up until 2001 and during that time
experienced the high cost of textbooks. (Id.
iiii 95-98.)
It appears that Liu's
business of purchasing textbooks abroad and selling those foreign editions in the
United States began during the time she was a student: she needed a statistics
book and realized the version made in China was much cheaper; she called a friend
in China to help order the book directly. (Id.
iiir 95-99.) "Having found this new
source [of cheaper textbooks, Liu] began selling those books on Amazon.com and
Half.com to supplement household income." (Id.
ii 98.)
Among the publishers whose texts Liu purchases abroad for resale in the
United States are those of the Pearson and Wiley. These companies, along with
other publishers, are alleged to collectively control 87% of "the market for textbooks
assigned by faculty teaching at United States colleges and universities." (FAC
ii 8.)
Pearson and Wiley together constitute 35.8% of that market. (Id.) Pearson and
Wiley are not alleged to have any corporate relationship or affiliation.
Liu alleges that in the past, the Department of Justice found that Pearson
and a textbook company with which it wanted to merge (a unit of Viacom) competed
in "no fewer than 32 college textbook markets." (Id.
1
ii 71.) Divestiture of a number
While the amended Counterclaims do not tell a linear story, the Court has
attempted to place the allegations in a logical, non-repetitive order for the sake of
clarity.
3
of textbook titles was required as a condition of clearance. (Id.
~
72.) Liu alleges
that Pearson and Wiley therefore compete with respect to trying to persuade college
professors to choose their textbook. (Id.
~
75.)
According to Liu, both Pearson and Wiley charge more for U.S. editions of
textbooks than for foreign editions. (Id.
~
80.) Liu further alleges that Pearson and
Wiley take steps to discourage or deter the purchase of foreign editions for U.S. use
by including statements such as "Not for sale in the U.S. or Canada" on an inside
cover. (Id.
~~
80-84.) Special online or bundled materials available only to
purchasers also make it difficult to substitute foreign or used editions for new
editions. (Id.
~[
94.)
According to Liu, Pearson, Wiley, and other publishers joined together to
"deal with" the problem of competition from used book sales. They allegedly
engaged in all of the following conduct in order to reduce price competition:
conspiring with each other to prevent copies of textbooks first sold in foreign
markets from being resold in the U.S.; making "identical decisions" with respect to
licensing their copyrights for distribution of foreign editions; and engaging in a
"campaign" to reduce competition (and "impair" the First Amendment rights of U.S.
booksellers and their customers) by instituting litigation and unnecessarily issuing
new editions of textbooks or bundling additional materials with U.S. editions.
In support of these allegations Liu asserts that Pearson, Wiley, and other
publishers have an economic interest in suppressing the sale of new and unused
books sold outside of the United States. In furtherance of this interest, in 2006,
4
Pearson, Wiley and other publishers are alleged to have brought various and
substantively identical lawsuits. (Id.
ii 48.) In 2007, "they" jointly sued Valore,
Inc., owner of the online bookstore, ValoreBooks.corn. (Id.
alleged, without any detail, to have been a sham. (Id.
ii 49.) This litigation is
ii 50.)
One of the lawsuits - brought against a reseller similarly situated to Liu went to the Supreme Court on the issue of whether the first sale doctrine applied to
foreign sales. Kirtsaeng v. John Wiley & Sons, Inc., - U.S. - , 133 S.Ct. 1351 (2013).
The Supreme Court held that it does. Id. at 1356-57. Liu alleges that despite this
ruling, Pearson and Wiley have refused to release those with whom they have
"extracted agreements to suppress [foreign edition sales into the U.S.]." (FAC
ii 57.)
At some point, Liu's seller accounts allegedly were blocked and she was
informed these services did not want her selling international editions on their sites
"but that it was not illegal for her to do so." (Id.
ii 99.) Liu's accounts at
Amazon.corn, Abebooks, Alibris, eBay, and ValoreBooks.corn all remain blocked.
(Id.
ii 57.) Liu alleges "upon information and belief' that Amazon.corn and Half.corn
"blocked her accounts because of complaints from the respective book publishers,
and not due to their own independent decision to refuse to do business with [her]."
(ldc
ii 100.)
Rising costs of textbooks have been the subject of various governmental
inquiries. (Id.
II.
ii 89.)
THIS LAWSUIT
5
On July 3, 2008, Pearson and Wiley sued Liu - along with Allen Air
Conditioning Co., Jian Liu, all d/b/a JMBooks d/b/a Linda Liu, and John Doe Nos. 1
through 5, for copyright infringement and Lanham Act violations. (ECF No. 1.) On
February 6, 2009, Liu first asserted antitrust counterclaims. (ECF No. 18.) On
May 21, 2010, the Court of Appeals stayed those claims - as well as the remainder
of the action - pending a decision in John Wiley & Sons, Inc. v. Kirtsaeng. (ECF
No. 32.)
On March 19, 2013, the Supreme Court decided Kirtsaeng. Following this
decision, Pearson and Wiley's copyright claims were dismissed. (ECF Nos. 51; 74.)
On June 28, 2013, Pearson and Wiley moved to dismiss Liu's counterclaims. (ECF
No. 57.) On October 21, 2013, the Court held a conference during which time it
highlighted a number of pleading deficiencies in Liu's counterclaims. (ECF No. 97.)
Liu was provided an opportunity to re-plead, and on December 4, 2013, she filed her
amended Counterclaims. (ECF No. 108.)
On December 23, 2013, Wiley and Pearson filed a joint motion to dismiss
Liu's amended Counterclaims. (ECF No. 115.) That motion became fully briefed on
January 30, 2014. (ECF No. 127.)
The amended Counterclaims assert two antitrust and two state law claims.
In addition to the allegations set forth above, the First Counterclaim asserts that
the Publishers engaged in a violation of Section 1 of the Sherman Act based on the
following:
6
1. "[S]ome publishers made an agreement with an online retailer outside the
United States to limit the number of copies of a given textbook that can be
delivered to a single U.S. address in one order." (Id.
ii 104.)
2. "Pearson and Wiley both concede that they each communicated with one
or more college textbook publishers on the topic of collectively restraining
the sale of foreign edition copies in the United States before taking action
against a bookseller or Internet sales portal to prevent the importation
into the United States, or prevent the sale within the United States, of
foreign edition copies of its works before first having communicated." (Id.
ii 106 (emphasis in original).)
3. "On information and belief, coming in response to complaints from
customers in the [U.S.], from concerns voiced to investors, from
communications reported to the [Government Accountability Office], and
lacking any plausible pro-competitive justification for their conduct, the
inescapable conclusion is that Pearson and Wiley agreed with each other
(and possibly with some of their customers) to take the joint action
described above to suppress competition .... " (Id.
ii 107 .)
4. Wiley, along with other publishers, was a plaintiff in a lawsuit; it refuses
to admit or deny whether it consulted with other co-plaintiff publishers in
that lawsuit regarding whether it should accept a settlement offer from
the defendant in that lawsuit. (Id.
7
ii 109.)
5. "Pearson and Wiley, along with Cengage (Thomson) and McGraw-Hill,
entered into an agreement with ValoreBooks.com, the online marketplace
used by Ms. Liu, to refuse to allow Ms. Liu to sell her cheaper foreign
edition books through their service." (Id.
ii 113.)
6. "Upon information and belief, Pearson and Wiley also caused other online
marketplaces, specifically Amazon.com and Half.com, to agree not to allow
Mrs. Liu to sell Pearson books, Wiley books, or foreign edition books of
their competitors through their online marketplaces." (Id.
ii 114.)
7. "Pearson and Wiley both falsely accused Liu of infringing their copyrights,
making these accusations to companies with which Liu was then doing
business. They did so for the purpose of persuading those companies to
interfere with Liu's lawful sales." (Id.
ii 116.)
The second counterclaim asserts a violation of Section 2 of the Sherman Act
for "monopolization of non-exclusive rights in secondary sales." (Id. at 37.) Here,
Liu alleges that Pearson and Wiley have conspired with each other and with
similarly situated textbook publishers to expand the scope of their lawful exclusive
copyright by suppressing competition from foreign sales, publishing new editions of
their books at an accelerated pace to diminish the period of usefulness of older
versions, bundling copies of their works with other materials (e.g., passwordprotected online supplementary materials), and engaging in sham litigation. (Id.
122.)
8
ii
Liu's final two counterclaims allege state law causes of action for tortious
interference with existing and prospective business relations. (Id.
i!~[ 124-138.)
These claims rely upon the same conduct regarding the online retailers as set forth
above.
III.
LEGAL STANDARDS
A.
Motion to Dismiss
To survive dismissal, an antitrust complaint must allege "enough facts to
state a claim to relief that is plausible on its face." Bell Alt. Corp. v. Twombly, 550
U.S. 544, 555 (2007); Starr v. Sony BMG Music Entm't, 592 F.3d 314, 321 (2d Cir.
2010) (quoting Twombly, 550 U.S. at 570); see also Ashcroft v. Iqbal, 556 U.S. 662,
677-78 (2009) (same). "A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Igbal, 556 U.S. at 678.
In applying this standard, the Court accepts as true all well-plead factual
allegations, but does not credit "mere conclusory statements" or "threadbare recitals
of the elements of a cause of action." Id. If the Court can infer no more than "the
mere possibility of misconduct" from the factual averments - in other words, if the
well-pleaded allegations of the complaint have not "nudged claims across the line
from conceivable to plausible," dismissal is appropriate. Twombly, 550 U.S. at 570;
Starr, 592 F.3d at 321 (quoting Iqbal, 556 U.S. at 678).
In a case alleging a conspiracy under the antitrust laws, "an allegation of
parallel conduct and a bare assertion of conspiracy will not suffice." Twombly, 550
9
U.S. at 556. "Without more, parallel conduct does not suggest conspiracy, and a
conclusory allegation of agreement at some unidentified point does not supply facts
adequate to show illegality." Id. at 556-57. Put another way, it is not enough to
simply allege an unlawful agreement; to survive dismissal, a Complaint must allege
enough factual matter to plausibly suggest the parties entered into an
anticompetitive agreement. In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir.
2007). Even "conscious parallelism" - a reasonable reaction of firms in a
concentrated market when they recognize shared economic interests and
interdependence with respect to price and output decisions - "is not itself unlawful."
Twombly, 550 U.S. at 553-54 (internal quotation marks omitted and citing Brooke
Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993)). "The
inadequacy of showing parallel conduct ... without more, mirrors the ambiguity of
the behavior: consistent with conspiracy, but just as much in line with a "wide
swath of rational and competitive business strategy unilaterally prompted by
common perceptions of the market." Id. at 554 (citation omitted).
Accordingly, a district court retains the power to insist upon a certain
amount of specificity before it opens the door to what may be massive discovery
burdens. Twombly, 550 U.S. at 558.
B.
The Noerr-Pennington Doctrine
10
The Noerr-Pennington doctrine has its origin in the Supreme Court's
decisions in Eastern Railroad Presidents Conf. v. Noerr Motor Freight, Inc., 365
U.S. 127 (1961), United Mine Workers v. Pennington, 381 U.S. 657 (1965), and
subsequent case law. See, e.g., Primetime 24 Joint Venture v. NBC, Inc., 219 F.3d
92, 100 (2d Cir. 2000). Under the Noerr-Pennington doctrine, "defendants are
immune from antitrust liability for engaging in conduct (including litigation) aimed
at influencing decisionmaking by the government." Octane Fitness, LLC v. ICON
Health & Fitness, Inc., - U.S. - , 134 S.Ct. 17 49, 1757 (2014) (citing Professional
Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 56 (1993)
("PRE")).
There is a "sham litigation" exception to the doctrine: sham litigation,
brought to cover an attempt to interfere directly with business relationships of a
competitor, or for the purposes of achieving that goal, is not immunized. Id. at
1757. To qualify as a "sham," a lawsuit must be "objectively baseless" and brought
"in an attempt to thwart competition." Id. (citing PRE, 508 U.S. at 60); Primetime
24 Joint Venture, 219 F.3d at 101 (reversing a district court's dismissal of claims as
covered by Noerr-Pennington, finding sufficient allegations of legal proceedings
brought without regard to the merits and for the purpose of injuring a market
rival.) 2
2 Even apart from application of the Noerr-Pennington doctrine, coordinated
enforcement of legal rights would typically have no discernible effect on
competition. Primetime 24 Joint Venture, 219 F.3d at 99. Without an effect on
competition, it could not rise to the level of an antitrust violation. Id.
11
C.
Antitrust Claims3
1.
Antitrust Standing
Every plaintiff asserting a claim arising under the antitrust laws must allege
a sufficient basis for antitrust standing. Paycom Billing Servs., Inc. v. Mastercard
Int'l, Inc., 467 F.3d 283, 290 (2d Cir. 2006). Antitrust injury is the sine qua non of
antitrust standing. See Brunswick Corp. v. Pueblo Bowl-0-Mat, Inc., 429 U.S. 477,
489 (1977); see also Paycom Billing Servs., Inc., 467 F.3d at 290. "An antitrust
injury is an 'injury of the type the antitrust laws were intended to prevent and flows
from that which makes defendants' acts unlawful." Paycom Billing Servs., Inc., 467
F.3d at 290 (quoting Brunswick Corp., 429 U.S. at 489). "The injury should reflect
the anticompetitive effect either of the violation or of the anticompetitive acts made
possible by the violation." Brunswick Corp., 429 U.S. at 489. "The antitrust injury
requirement ensures that a plaintiff can recover only if the loss stems from a
competition-reducing aspect or effect of the defendant's behavior." Atlantic
Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990) (emphasis in original).
Even if a plaintiff can adequately allege antitrust injury, to have standing it
must also be an efficient enforcer of the antitrust laws. Paycom, 467 F.3d at 290-91
(finding that Paycom was not an efficient enforcer due to the indirectness of its
injuries and speculative damages). The "efficient enforcer" factors include:
(acknowledging that most questions of coordinated litigation are nevertheless
analyzed under the Noerr-Pennington doctrine.)
3 There is a four year statute of limitations for antitrust actions. 15 U.S.C.A. § 15b.
The antitrust counterclaims in this action were originally asserted in February 6,
2009. (ECF No. 18.) Thus, while much of the conduct alleged extends back years,
the claims are in fact timely.
12
(1) the directness or indirectness of the asserted injury;
(2) the existence of an identifiable class of persons whose
self-interest would normally motivate them to vindicate
the public interest in antitrust enforcement; (3) the
speculativeness of the alleged injury; and (4) the difficulty
of identifying damages and apportioning them among
direct and indirect victims so as to avoid duplicative
recoveries.
Id. (internal quotation marks and citations omitted).
2.
Elements of a Section 1 Claim
Section 1 of the Sherman Act prohibits unreasonable restraints of trade.
State Oil Co. v. Kahn, 522 U.S. 3, 10 (1997) (citations omitted); Paycom Billing Svs.,
Inc., 467 F.3d at 289 (citations omitted). Courts review challenged agreements
under either a "per se" or "rule of reason" theory. 4 Paycom Billing Sys., Inc., 467
F.3d at 289. The per se label is limited to those actions with which courts have
sufficient prior experience "to predict with confidence that the rule of reason will
condemn it." Arizona v. Maricopa Cnty. Med. Soc'y, 457 U.S. 332, 344 (1982).
These types of agreements "have such pernicious and predictable anticompetitive
effects, and such limited potential for procompetitive benefit, that they are deemed
unlawful per se." Paycom, 467 F.3d at 289-290 (citing State Oil, 522 U.S. at 10).
Most antitrust claims are analyzed under the rule of reason analysis. Id.
Horizontal agreements among competitors are classic types of per se claims.
NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135-36; see also Klor's, Inc. v.
A showing of antitrust injury is required if the claim is analyzed under the rule of
reason or as a per se violation. Atlantic Richfield Co., 495 U.S. at 344 (1990).
4
13
Broadway-Hale Stores, Inc., 359 U.S. 207, 212 (1959) ("Group boycotts, or concerted
refusals ... to deal. .. , have long been held to be [per se antitrust violations].")
Vertical agreements are typically not analyzed under the per se analysis.
NYNEX, 525 U.S. at 135-37 (noting that vertical price fixing as an exception).
Claims for per se violations of Section 1 of the Sherman Act do not require
allegations of relevant markets or a demonstration of market power. See Agnew v.
National Collegiate Athletic Ass'n, 683 F.3d 328, 336 (7th Cir. 2012) ("Under the per
se framework, a restraint is deemed unreasonable without any inquiry into the
market context in which the restraint operates."); see also MCM Partners, Inc. v.
Andrews-Bartlett & Assocs., Inc., 62 F.3d 967, 976 (7th Cir. 1995) ("To state a claim
for relief under Section 1, a plaintiff must allege either that the contract,
combination, or conspiracy resulted in a per se violation of the Sherman Act or that
it unreasonably restrained competition in a relevant market") (emphasis added)
(citations omitted).
The Sherman Act does not prohibit a unilateral refusal of a trader or
manufacturer to deal with another. United States v. Colgate & Co., 250 U.S. 300,
307 (1919); Verizon Commc'ns, Inc. v. Law Offices of Curtis V. Trinka, 540 U.S. 398,
408 (2004) (citing Colgate, 250 U.S. at 307). However, concerted refusals to deal are
analyzed as per se violations of the antitrust laws. Bogan v. Hodgkins, 166 F.3d
509, 515 (2d Cir. 1999) (explaining that a group boycott, "a concerted attempt by a
group of competitors at one level to protect themselves from competition from non-
14
group members who seek to compete at that level" is illegal per se) (internal
quotation marks and citation omitted).
3.
Elements of a Section 2 Claim
Section 2 of the Sherman Act forbids "monopolization" and "attempted
monopolization." 15 U.S.C.A. § 2. A claim brought under Section 2 requires the
"possession of monopoly power in the relevant market" and "the willful acquisition
or maintenance" of that monopoly position. See Verizon Commc'ns, Inc., 540 U.S. at
407 (internal quotation marks and citation omitted).
The mere possession of monopoly power and charging of monopoly prices is
not in and of itself unlawful - indeed, it is an expected and important element in a
free-market system. Id.
IV.
DISCUSSION
Liu's counterclaims assert a host of concerted action by Pearson and Wiley
along with non-defendant publishers. Despite an initial pleading and a conference
with the Court in which it detailed deficiencies in that pleading, the amended
pleading fares no better than the first.
The counterclaims allege the following acts:
•
Concerted litigation in 2006;
•
Concerted litigation against ValoreBooks.com in 2007;
•
Following the Kirtsaeng decision, failure to change business practices
with various online retailers and the blocking of Liu's accounts with
various online retailers;
15
•
An agreement with retailers outside the U.S. to limit the number of
copies that can be delivered to a single U.S. address in a single order;
•
Statements including on the covers or other parts of publications
seeking to discourage purchasing foreign books for U.S. resale or
distribution; and
•
Unnecessarily publishing new editions or including special or bundled
materials on new copies of publications.
A.
Standing
Pearson and Wiley argue that Liu lacks antitrust standing. Given the
number of diverse claims Liu has brought, they are both correct and incorrect. As
an initial matter, it is important not to confuse adequately pleading antitrust injury
and the other elements of standing with a review of the merits of a claim. At a basic
and high level, if it were the case that Pearson and Wiley agreed to undertake
specific actions to prevent Liu from acquiring and selling foreign edition textbooks,
such conduct could result in cognizable antitrust injury. The resulting decrease in
output (that is, available foreign editions), might impact price competition in the
U.S. Liu, as a seller of such textbooks, would be directly impacted in terms of units
available. Her damages would not be unduly speculative. The Court disagrees,
therefore, that such conduct would necessitate dismissal for lack of antitrust
standing as to such claims.
Plaintiff, however, lacks antitrust standing with respect to claims as to those
competing resellers (similarly situated to herself) such as ValoreBooks.com. To the
16
extent plaintiffs claims with regard to Valore are that it was the target (as was Liu)
of coordinated litigation, Liu has not herself suffered antitrust injury as a result of
that conduct. Put otherwise, if Pearson and Wiley harm one of Liu's competitors, it
is unclear how that harms Liu. Indeed, preventing a competitor from obtaining
used product would enhance Liu's competitive position vis-a-vis ValoreBooks.com.
To the extent Liu's claims regarding ValoreBooks.com, Amazon.com,
Half.com, and others relates to their role as a source of product for her (e.g., that
she purchases foreign editions from them for resale), such allegations are not made
clearly. Assuming arguendo such a claim, in that context it is possible that the
decreased availability of product to these online resellers would result in less
product at higher prices for Liu (and others like her). That Liu's business model is
the resale of such product does not, alone, defeat standing.
Liu's allegations regarding unnecessarily new editions and bundled features
are also not a basis for standing. On their face, publication of new editions with upto-date information and/or bundled additional materials are output-enhancing:
they result in more, different, and improved product in the market. On their face,
these allegations do not amount to the type of harm the antitrust laws were
designed to address. See Brunswick Corp., 429 U.S. at 488-89.
The Court assumes Liu has sufficient standing to pursue certain claims, but
not others, as set forth above.
B.
Coordinated Litigation
17
With respect to coordinated litigation among publishers, the counterclaims
assert that "[t]heir joint litigation action was a sham to cover collusion" and "was
objectively baseless" (FAC
if 50) - but there are no specific allegations as to why
that is so. For instance, there are no allegations that there was a meeting in a
smoky room at which the publishers agreed to try to undermine Liu's business
model of selling foreign edition books by bringing frivolous litigation against her. It
is certainly more plausible that in pursuing the expense of litigation, publishers
were engaged in a good faith and legitimate task of seeking to protect their
copyrights. Twombly requires more for Liu to state a claim.
The coordinated litigation is also precisely the type of activity protected by
Noerr-Pennington. While the counterclaims invoke the word "sham" and phrase
"objectively baseless," there is nothing behind those words; they are merely rhetoric.
The public record, available to the Court on a motion to dismiss, see
Chambers, 282 F.3d at 153, suggests that the publishers deeply believed in their
litigation position. Both Kirtsaeng and this case have been fought long and hard Kirtsaeng making its way to the Supreme Court. The Supreme Court's ruling
clarified - for the first time - that the "first sale" doctrine applies to copyrighted
goods sold outside of the United States. 133 S.Ct. at 1356-57. This ruling was by no
means a foregone conclusion. The position of the plaintiffs in that case and this
cannot be said to have been "objectively baseless." Accordingly, such coordinated
litigation activity is immunized from antitrust liability. Primetime 24 Joint
Venture, 219 F.3d at 100-01.
18
Liu argues that F.T.C. v. Actavis, Inc., - U.S. - , 133 S.Ct. 2223 (2013) "blows
away the Noerr-Pennington fig leafs." (Defendant Ganghua Liu's Opposition to
Plaintiffs' Third Motion to Dismiss her Counterclaims ("Def.'s Opp'n") at 3, Jan. 23,
2014, ECF No. 122.) This misunderstands Liu's own claims as well as those in
Actavis. Actavis concerned an entirely different type of activity - reverse
settlement payments between one holder of a drug patent and two generic
manufacturers. Actavis, Inc., 133 S.Ct. at 2230. The agreement was alleged to be a
"pay for delay" agreement: the patent holder pays generics to remain out of the
market for a period of time. The Court's focus was on reviewing not only the patent
policy implications (but extending patent exclusivity), but also antitrust policies.
Id. at 2231. The Court reiterated the longstanding proposition that patent
settlements can sometimes violate the antitrust laws. Id. at 2232. The Court found
that depending on the particular terms of a settlement, a settlement may in fact
provide the basis for an antitrust claim. Id. at 2237. The Supreme Court declined
to find that such settlements were presumptively unlawful. Id.
Actavis did not narrow the Noerr-Pennington doctrine.
C.
Failure to Reverse Business Practices
Liu alleges that following Kirtsaeng, Pearson, Wiley, and other unspecified
publishers failed to alter their business practices and that Liu's accounts were
blocked and remain blocked. This allegation - to the extent that is even an
allegation of unlawful concerted action - fails for a number of reasons. First, it
lacks the requisite specificity under Twombly: there are no specific allegations
19
leading to any plausible inference that any particular publisher ever met with any
other publisher to discuss and agree on business practices vis-a-vis Liu or vis-a-vis
even others selling foreign editions of publications in the U.S. There are no
allegations that any of the online retailers met with a group (or representative of a
group) of publishers to execute the coordinated strategy.
Indeed, the plausible inferences to be drawn are far more consistent with
lawful, unilateral behavior. Each online retailer may - under Colgate and its
progeny - deal with whomever it pleases on terms it can negotiate. 250 U.S. at 307.
That certain online retailers have chosen not to deal with Liu is more consistent
with maintaining lucrative relationships with the publishers whose textbooks result
in new sales at higher margins on a regular basis.
Each publisher plainly has an incentive for online retailers to buy new texts
from them - texts for which they receive the purchase price (versus used texts for
which they do not), as well as to carry their most up to date, robust domestic
editions (the allegations of the counterclaims make it clear that the foreign editions
resold into the U.S. are neither as up to date nor as robust).
In addition, Liu does not allege any detail with regard to who has an
agreement with whom, nor does she explain the relevant terms of such agreement.
Thus, it is impossible to know whether the offending agreement is a horizontal
agreement, a vertical agreement, a rimless conspiracy, a rimmed conspiracy, or
none of the above.
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Without the basic contours of any allegedly unlawful agreement, this Court
cannot analyze whether there are, for instance, sufficient procompetitive reasons
apparent for any practice to make an unlawful agreement implausible. For
instance, a vertical agreement between a publisher and online retailer that merely
requires the online retailer to carry the most recent edition of a textbook has
obvious procompetitive justifications - it ensures that a purchaser is obtaining the
most up to date version. Similarly, an agreement between a publisher and an
online retailer prohibiting the retailer from dealing in used versions of that
publishers books has a procompetitive justification found in the very allegations of
the counterclaims themselves: the U.S. editions have different content.
In the absence of any specific allegations, the Court will not assume that
there is a horizontal agreement between publisher-competitors to all pursue similar
exclusionary policies. As the Supreme Court found in Twombly, mere parallel
conduct alone is not a basis for an antitrust claim. 550 U.S. at 556-57.
D.
The Monopolization Claim
Liu also alleges claims under Section 2 of the Sherman Act for
monopolization of "non-exclusive rights in secondary sales." This claim appears to
allege that Pearson and Wiley used exclusive rights they have in certain works to
try and monopolize rights that they do not have, for instance, the right to resell
foreign editions into the U.S. This claim fails for a number of reasons. As an initial
matter, all claims under Section 2 of the Sherman Act require that a plaintiff allege
a cognizable market, that the defendant have market power, and that the defendant
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engage in conduct to wilfully maintain or extend that position. None of these
elements have been adequately alleged here.
Liu has failed to allege a cognizable relevant market; the relevant market she
appears earlier in her counterclaims to be pursuing (relating to college textbook
titles) has given way in the second Counterclaim to a generalized statement of
conduct in no clear market.
In the absence of an adequately pled relevant market, there cannot be
sufficient allegations of monopoly power. The second Counterclaim must be
dismissed.
E.
Liu's State Law Claims
Having dismissed Liu's federal antitrust claims, the Court declines to assert
supplemental jurisdiction over the state law claims. Those claims are dismissed.
V.
CONCLUSION
For the reasons set forth above, the Publishers' motion to dismiss the
Amended Counterclaims is GRANTED. The Clerk of Court is directed to terminate
the motion at ECF No. 115 and to terminate this action.
SO ORDERED.
Dated:
New York, New York
May _21:;- 2014
KATHERINE B. FORREST
United States District Judge
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