Abbey House Media, Inc. v. Apple Inc. et al

Filing 183

OPINION & ORDER.....The Publisher Defendants September 18 motion for summary judgment is granted and the claims asserted in this action are dismissed with prejudice. The Clerk of Court shall close the case. (Signed by Judge Denise L. Cote on 1/22/2016) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
ABBEY HOUSE MEDIA, INC., d/b/a
:
BOOKSONBOARD,
:
:
Plaintiff,
:
:
-v:
:
APPLE INC.; HACHETTE BOOK GROUP, INC.; :
HARPERCOLLINS PUBLISHERS, LLC,;
:
VERLAGSGRUPPE GEORG VON HOLTZBRINCK
:
GHBH; HOLTZBRINCK PUBLISHERS, LLC,
:
d/b/a MACMILLAN; THE PENGUIN GROUP, A :
DIVISION OF PEARSON PLC; and SIMON &
:
SCHUSTER, INC.,
:
:
Defendants.
:
-------------------------------------- X

14cv2000 (DLC)
OPINION & ORDER

APPEARANCES:
For Plaintiffs
Maxwell M. Blecher
Blecher Collins Pepperman & Joy P.C.
515 Figueroa St., Suite 1759
Los Angeles, CA 90071
For Defendant Hachette Book Group, Inc.
Michael Lacovara
Richard Snyder
Samuel J. Rubin
Freshfields Bruckhaus Deringer LLP
601 Lexington Avenue
New York, NY 10022
For Defendant HarperCollins Publishers, LLC
C. Scott Lent
Arnold & Porter, LLP
399 Park Avenue
New York, NY 10022
For Defendants Macmillan Publishers Inc., and Verlagsgruppe
Georg Von Holtzbrinck GmbH:
Joel M. Mitnick
John Lavelle

Sidley Austin LLP
787 Seventh Avenue
New York, NY 10019
For Defendant The Penguin Group:
Saul P. Morganstern
Amanda C. Croushore
Margaret A. Rogers
Kaye Scholer LLP
425 Park Ave.
New York, NY 10022
For Defendant Simon & Schuster, Inc.:
James W. Quinn
Yehudah L. Buchweitz
Jeff L. White
Weil, Gotshal & Manges LLP
767 Fifth Avenue, 25th Fl.
New York, NY 10153
DENISE COTE, District Judge:
Abbey House Media, Inc. d/b/a BooksOnBoard (“BOB”), a
defunct e-book retailer, brings this action against five book
publishers, Hachette Book Group, Inc. (“Hachette”),
HarperCollins Publishers, LLC (“HarperCollins”), Macmillan
Publishers Inc. and Verlagsgruppe Georg Von Holtzbrinck GmbH
(“Macmillan”), The Penguin Group (“Penguin”), and Simon &
Schuster, Inc. (“Simon & Schuster”) (collectively, “Publisher
Defendants”).

Pursuant to Section 1 of the Sherman Antitrust

Act, 15 U.S.C. § 1, and Section 340 of the Donnelly Act, N.Y.
Gen. Bus. Law § 340, BOB seeks to recover damages plaintiff
asserts it sustained due to the defendants’ conspiracy with
Apple Inc. (“Apple”) to fix prices and reduce competition in the

2

e-book industry.1
BOB’s claims arise from discussions initiated by Apple in
December 2009 with the Publisher Defendants to explore the terms
under which e-books might be available for Apple’s new device,
the iPad, which Apple launched in January 2010.

As a result of

these discussions, the Publisher Defendants implemented agency
distribution agreements in 2010 with e-book retailers with the
purpose and effect of eliminating retail price competition and
raising the retail prices for many e-books.
In 2011 and 2012, the U.S. Department of Justice, various
states, and class action plaintiffs filed antitrust lawsuits
against the Publisher Defendants and Apple alleging violations
of the Sherman Act.

While the Publisher Defendants settled

these claims, Apple proceeded to trial and was found liable in
July 2013.

United States v. Apple Inc., 952 F. Supp. 2d 638,

709 (S.D.N.Y. 2013).

In March of 2014, BOB filed this antitrust

case alleging that its business was predicated on aggressive
discounting and that the defendants’ agency conspiracy thus
caused BOB’s demise.
Following the completion of discovery, the Publisher
Defendants moved for summary judgment on the grounds that BOB
has not shown that the alleged conspiracy caused the failure of

The plaintiff also brought this lawsuit against Apple.
plaintiff and Apple have settled.
1

3

The

its e-book business or that it suffered an antitrust injury.
The motion is granted.

The Publisher Defendants have provided

an extensive record demonstrating that BOB was failing as a
business before the Publisher Defendants implemented the agency
model for distributing their e-books in 2010, and that BOB could
not effectively compete through discounting or otherwise.
Rather than identifying agency pricing as the cause of its
demise, BOB instead touted agency pricing’s benefits to both
investors and creditors.

BOB fails to rebut this evidence and

thus has not raised a disputed issue of material fact that would
entitle it to a trial.
BACKGROUND
The following facts are undisputed or taken in the light
most favorable to the plaintiff.

Robert LiVolsi (“LiVolsi”)

founded BOB in 2006 as an internet retail e-book store.

BOB’s

e-books were principally read on desktop computers; BOB never
developed a dedicated proprietary e-reader.

According to

LiVolsi, as of 2006, it was still unclear whether “people would
accept e-books.”

Amazon.com, Inc. (“Amazon”) and Barnes &

Noble, Inc. (“Barnes & Noble”) had recently closed their
inaugural e-book stores.
BOB did not purchase its e-books directly from the
Publisher Defendants.

Instead, it purchased e-books for its

4

inventory from wholesalers2 at approximately 60% of the suggested
digital list price (“DLP”), and generally discounted its prices
for consumers between 17% and 21% off of DLP.

The “bread and

butter” of BOB’s business was the sale of e-book versions of
paperback books.3

BOB also offered a rewards program to its

customers.4
I.

BOB’s Competition
Beginning in 2007, BOB was faced with stiff competition.

Amazon re-entered the e-book market at the end of 2007 and
quickly became the dominant e-book retailer.

Amazon also

introduced its popular e-reader device, the Kindle, in November
2007.

Amazon sold e-book versions of many hardcover books for

$9.99, a price that was often well below BOB’s inventory cost of
the book.
In March 2009, Barnes & Noble re-entered the e-books market

BOB purchased its inventory from two intermediary wholesale ebook distributors, OverDrive Inc. (“OverDrive”) and Ingram DV
LLC a/k/a Lightning Source Inc. (“Ingram”).
2

Most trade books appear first in hardcover. Trade books
consist of general interest fiction and non-fiction books, and
are distinguished from “non-trade” books such as academic
textbooks, reference materials, and other texts. Apple Inc.,
952 F. Supp. 2d at 648 n.4. Publishers traditionally delayed
the release of paperback versions of hardcover books with a
practice known as windowing. Id. at 652 n.10.
3

For example, BOB’s CEO has testified that customers could
collect rewards to buy new e-books. BOB has not offered
evidence describing precisely how its rewards program worked or
the extent to which it was employed.
4

5

as well, and by September of 2009, it had also adopted Amazon’s
$9.99 model for e-book versions of certain hardcover books.
Barnes & Noble then introduced its e-reader device, the NOOK, in
November 2009.

Barnes & Noble also discounted e-book versions

of certain paperbacks, which had a direct impact on the core of
the BOB business.

By 2009, Sony Corporation (“Sony”) had

entered the retail market and similarly discounted the e-books
it sold.
The impact on BOB of the competition from Amazon, Barnes &
Noble, and Sony was enormous.

BOB had negative net income every

year it was in existence and never had a profitable quarter.
While BOB’s revenue grew somewhat, its monthly revenues were
never large.

For example, they fluctuated between approximately

$180,000 and $230,000 from April 2009 to March 2010.

As

competition increased, BOB’s rate of growth slipped.

Its year-

over-year growth rate shrank from 150% in April 2009 to a meager
21% in March 2010.5
As BOB struggled, the e-book market took off and BOB lost
market share.

BOB’s share of the market decreased from about

3.7% in January 2008 to 0.5% in March 2010.

By March 2010,

Year-over-year growth percentages, the plaintiff’s preferred
measurement, compare revenue from a given month to revenue from
the corresponding month of the previous year.
5

6

Amazon, Barnes & Noble, and Sony had captured 98% of the e-book
market.
Repeatedly, BOB failed to meet the targets LiVolsi set for
his company.

For example, LiVolsi expected BOB to have a

“strong profitable financial 90 day history to show lenders” by
the end of May 2009, but as already recounted, it never made a
profit.

Later in 2009, LiVolsi hoped to reach revenue goals of

$270,000, $300,000, and $340,000 in October, November, and
December, but failed to meet each of them.

Indeed, BOB

significantly reduced its own revenue projections between 2008
and 2009 and still failed to meet its revised targets.
Reflecting its financial struggles, BOB owed money to its
e-book suppliers.

In March 2009, LiVolsi offered one of its

suppliers, Ingram, equity in exchange for forgiveness of debt.
Ingram rejected the invitation.

By September 2009, BOB was

experiencing significant cash flow problems.

LiVolsi attributed

these to Ingram’s demand that BOB pay its indebtedness, which
Ingram had determined had grown “too deep,” to a loss of $10,000
in sales due to a BOB website glitch,6 and BOB’s expenditures for
television promotions.7

BOB temporarily could not process PayPal and credit card sales
due to a technical glitch with PayPal.
6

These BOB promotions were to air on the Tyra Banks Show and the
Emmy Awards Show. The Tyra Banks Show promotion never aired.
7

7

Responding to BOB’s financial difficulties, LiVolsi
undertook cost-cutting measures that further undermined BOB’s
prospects for growth.

In March 2009, BOB reduced the funds

devoted to driving customers to its website.

In late 2009, BOB

delayed paying its public relations firm and implemented
employee lay-offs and pay cuts.

BOB’s laid off four of its

employees and the salaries of remaining employees were cut by as
much as 50%.
There is a robust contemporaneous record of LiVolsi’s
recognition of BOB’s severe financial troubles.

He wrote to a

BOB vice president that margins were “catastrophic” with over
$60,000 in losses in December 2008 and January 2009.

By March

2009, he observed that BOB had $390,000 “in payables
outstanding.”

Indeed, that month, BOB implemented an across the

board 6% price hike to improve margins.
LiVolsi repeatedly attributed BOB’s difficulties to its
inability to compete with larger e-book retailers that were
offering deeper discounts and that had their own proprietary
devices for reading e-books.

As early as November 2007, he

observed that “[i]t will be hard for our business to get behind
Amazon’s pricing and the Kindle in their current state.”

Two

years later, in an April 2009 email LiVolsi explained that BOB
could not make royalty payments because “[c]ompeting with Amazon
Kindle’s below cost pricing and proprietary format . . . has

8

significantly damaged our business and profitability.”

In

August 2009, LiVolsi reported to one of its suppliers,
OverDrive, that
Margins continues to haunt us as the 9.95 thing is
starting to cut into us. We have a hard focus on
improving margins with new pricing tools and twice
weekly reviews; challenge is competing with 40%
discount as a starting point against those with deeper
pockets and 50% as a starting point.
Similarly, in October 2009, he explained to his advertising
agency that
Amazon’s predatory pricing, well below cost on titles
like this, is very costly to our profit margins and,
as demonstrated here, restricts choice to consumers. .
. . Now Barnes & Noble and Sony have followed suit
pricing new hardcover-equivalent ebooks at 9.95, well
below costs. We have to match to maintain complete
offerings for our customers. Each copy of Lost Symbol8
sold cost us about $7 straight out of the bottom line.
Later that month, LiVolsi acknowledged defeat.

As he wrote to

one of his employees: “the space has now accelerated to where we
cannot keep up with Amazon, Barnes&Noble or Indigo/Chapter
(Shortcovers).”
II. BOB’s Other Competitive Disadvantages
As LiVolvsi’s above-quoted comments reflect, in addition to
BOB’s inability to compete on price, BOB was hobbled by its lack
of a proprietary e-reader device.

In late 2009, LiVolsi

acknowledged that the development of a device could have

8

Lost Symbol refers to a best-selling novel by author Dan Brown.
9

provided a “temporary bridge” to support the BOB business as it
struggled to compete against its largest competitors, but that
it would have required a “major capital infusion” that was
beyond BOB’s reach.

Through 2012, most BOB customers downloaded

e-books and read them on desktop computers.

As of late 2012,

LiVolsi calculated that one-third of BOB’s customers had
migrated to Kindles and NOOKS over the previous 18 months and
would no longer purchase e-books from BOB.

LiVolsi had

acknowledged for years that the lack of a device was a major
disadvantage in BOB’s business model and that BOB needed to, in
his words, “marry with a carrier on a big device,” but that
never happened.9
BOB faced several other competitive disadvantages as well.
First, unlike Amazon and Barnes & Noble, BOB did not have any
direct relationships with major publishers, including with any
of the Publisher Defendants.

Instead, BOB purchased its

inventory from intermediary wholesalers.

Because of the

additional fees that BOB had to pay to wholesalers, BOB had
higher inventory costs than competitors like Amazon and Barnes &
Noble, who purchased their e-books directly from publishers.

While BOB e-books were available to be read on some devices,
they could not be read on closed-environment e-readers such as
the “low end” Kindle Fire and NOOK tablets. Indeed, BOB does
not dispute that the existence of proprietary e-reader devices
added to BOB’s difficulties both before and after the Publisher
Defendants’ implementation of agency distribution.

9

10

BOB also had problems with its website.

One persistent

technical problem displayed “new releases” with “white covers,”
which discouraged purchasing.

In October 2009, a BOB developer

created a “duplicate website” that reduced traffic to BOB’s real
website.10
By late 2009, LiVolsi understood that BOB could not survive
without a significant cash infusion.

LiVolsi contacted a

venture capital firm seeking a “partnership or a strategic
acquirer that can leverage [BOB’s] resources and help us compete
. . . .”

LiVolsi acknowledged that he could not “sustain world

class competition with just our resources here against the likes
of Amazon, Barnes & Noble and Waterstones.”11

In LiVolsi’s view,

the “big guys” were “simply crowding us out with their sheer
mass.”
III. The Conspiracy Period
The conspiracy claims that underlie this lawsuit arise from
the discussions which Apple initiated in December of 2009 with
the Publisher Defendants to explore the terms under which the
publishers’ e-books might be available for Apple’s new device,
the iPad, which Apple launched on January 27, 2010.

The iPad

had the ability to function as an e-reader and to offer the

10

BOB dismissed the developer.

11

“Waterstones” is a large British book retailer.
11

iBookstore.

Each of the Publisher Defendants agreed to sign an

agency distribution agreement with Apple and supply it with
their e-books.

Because of the terms of their agreements with

Apple, each of the Publisher Defendants then required other ebook retailers to execute similar agency agreements.
Under the agency model, a publisher is the seller of record
and sets the retail price for an e-book.

Retailers sell the e-

book as the publisher’s agent, earning a commission on the sale
price.

The Publisher Defendants had previously sold e-books

through the wholesale model, whereby the publisher sold an ebook for a wholesale price and the retailer set the retail
price.

With the arrival of the agency model, Amazon, Barnes &

Noble, BOB, and every other e-retailer lost the ability to
discount those e-books for which the Publisher Defendants sought
to control the retail price.

For the most part, the Publisher

Defendants’ agency contracts controlled the e-book retail prices
for those physical books that were only available as hardcover
books and not for physical books that had also been released as
paperback books.

For example, the agency agreement between

Hachette and Apple only applied agency pricing to e-book
equivalents of frontlist hardcover books.

The agency model went

into effect for most of the Publishers Defendants as of April 3,
2010.

The purpose and effect of this conspiracy was to

eliminate retail price competition for many e-books and to raise

12

the retail prices for those e-books.

As a result of the agency

model, e-book retailers purchasing directly from the Publisher
Defendants were guaranteed a commission on the e-books they
sold.

The Publisher Defendants’ agency agreements set this

commission at 30%.12
In his communications to investors and creditors, LiVolsi
explained that the arrival of the agency model was an advantage
for BOB.

LiVolsi told one of BOB’s creditors, “[t]he pricing

structure is ultimately a good thing for us and will improve our
profitability.”13

On June 16, 2010, LiVolsi advised a potential

investor that the agency model “is actually a good thing for us
once past the integration of it as it stabilizes our gross
margin and makes it more predictable.”

This was true because

BOB’s “biggest margin impact was from sub-cost pricing from
Amazon and Barnes & Noble.
fixed across the board.”

Under [the agency] model, pricing is
Indeed, the following year, he even

With the adoption of the agency model and the substantial
commission payments, the Publisher Defendants actually reduced
their revenue from sales of many e-books. They anticipated,
however, that by raising the retail prices of e-books, they
would protect their sales of hardcover books, from which they
had traditionally profited.
12

In this same email, LiVolsi acknowledged, however, that the
adoption of the agency structure had thrown BOB a “curve ball”
since it had been deprived of access to books during the
transition period. That difficulty is described below.
13

13

contemplated suggesting to a small publisher that it use agency
pricing to sell its books to BOB and all other retailers.
Although LiVolsi expressed enthusiasm about the Publishers
Defendants’ adoption of the agency model, BOB encountered
serious difficulties during the transition period.

Because BOB

did not purchase books directly from the Publisher Defendants,
BOB depended on its e-book suppliers promptly executing agency
agreements with the Publisher Defendants and making e-books
available to BOB under those new terms.
immediately.

That did not happen

Precisely how long BOB was deprived of access to

e-books is hotly contested.

It appears that it took several

months for agreements to be executed with the principal
Publisher Defendants on which BOB relied for most of its
titles.14

BOB eventually signed tripartite agreements with

distributors OverDrive and Ingram and four of the Publisher
Defendants: HarperCollins on May 7, Penguin on May 19, Simon &
Schuster on August 24, and Hachette on September 20, 2010.15

BOB contends that it took even longer to regain access to all
publishers’ books, but has not provided documents to pinpoint
the length of time it took to obtain access to other publishers’
titles, or to correlate that information with the proportion of
its business that depended on sales of these other publishers’
books.
14

The parties did not provide copies of each of these documents
as part of the record on this motion, but these dates appear to
be undisputed.
15

14

Emails submitted by the parties indicate, however, that
HarperCollins’s titles were again available on April 12, less
than two weeks after the implementation of agency, and Simon &
Schuster’s became available on May 24.16

BOB thus had access to

product from three of the Publisher Defendants, HarperCollins,
Penguin, and Simon & Schuster, within a month and a half of
agency implementation.
LiVolsi repeatedly emphasized during 2010 that this
interruption in access to inventory was very damaging to BOB,
even though the switch to the agency model was an advantage.
For instance, on April 30, 2010, LiVolsi wrote to Ingram about
its efforts to secure agency agreements with the Publishing
Defendants, noting that “the outage –- not the agency pricing –has thrown us under the bus for the moment.”

Repeating this

theme, in February 2011, LiVolsi proposed the following revision
to a Wikipedia entry on the e-book industry:
By the end of 2010, without product that often
represented more than half of revenue, many
pioneering eBook retailers close [sic] their doors,
squeezed out not by the agency scheme itself, but by
the failure of the publishers to work with the
smaller long-term retailers in the wholesale channel
on a timely basis.
(emphasis added).

In November 2012, well after the Department

May 24, 2010 is also the day that OverDrive signed its
independent agency agreement with Simon & Schuster.
16

15

of Justice and various States filed antitrust lawsuits against
the defendants, LiVolsi prepared a draft letter to an associate
general counsel at HarperCollins noting that he had “been
approached by numerous contingency litigators in the wake of the
DOJ activity” and that he had “a fiduciary obligation to explore
[BOB’s] options.”

He further noted that the damages experienced

by BOB “were not in the price fixing, but in the sudden lack of
availability of product through the wholesale channel.”17

BOB objects to the use of this letter on the grounds that it
is protected by work-product doctrine and attorney client
privilege. In the Second Circuit, waiver of privilege depends
on balancing a number of factors, including the reasonable of
precautions taken to prevent inadvertent disclosure and the time
taken to rectify an error. See In re Grand Jury Proceedings,
219 F.3d 175, 188 (2d Cir. 2000); Lois Sportswear, U.S.A., Inc.
v. Levi Strauss & Co., 104 F.R.D. 103, 105 (S.D.N.Y. 1985)
(setting out four factors that courts balance to determine
waiver). Here, plaintiff handed over this letter to the
defendants as part of the discovery process. The letter was
then introduced as Exhibit 7 at LiVolsi’s February 2015
deposition. During the deposition, LiVolsi initially answered
several questions about the document, then stated that he had
co-written the letter with a lawyer, that it was never finalized
or sent, and that the letter “should be privileged by the way.”
Plaintiff’s counsel concurred stating that he “didn’t know that
this was co-written with an attorney,” that he was “going to
look into this some more . . . we have a claw-back agreement,”
and that he “reserved my rights for it.” Defense counsel
responded that it was clear from metadata that LiVolsi was the
author, and then agreed to discuss the letter later with
opposing counsel. BOB does not appear to have followed up with
defense counsel since the February 2015 deposition, nor did it
seek to limit questioning of the document during the deposition.
Indeed, BOB has introduced the LiVolsi testimony about this
letter into the record and has provided no further evidence that
the document was co-written by a lawyer. As such, BOB has
waived any privilege that might have been available to it.
17

16

Toward the end of 2010, LiVolsi reflected on BOB’s
strategic failures.

He identified five items that “threw off”

BOB from its business plan.

The fifth and last item on his list

was the loss of access to e-books during the conversion to the
agency system.

He estimated that that “outage” cost BOB 70% of

its regular customer base.

LiVolsi concluded that if BOB had

developed a direct relationship with Hachette and at least one
other publisher in 2009, that BOB “would have avoided” this
disruption.
Notably, the first four items on LiVolsi’s list were events
that predated the Publisher Defendants’ adoption of the agency
model.

They were BOB’s failure to develop its own e-reader, its

failed promotional investments in September 2009, the duplicate
BOB website created by an employee in October 2009, and Ingram’s
repayment demands in September 2009.
The absence of any reference in LiVolsi’s list to the
Publisher Defendants’ adoption of the agency model is not
unusual.

No contemporaneous document reflects that LiVolsi

attributed BOB’s struggles to the decision by the Publisher
Defendants to alter their distribution model in this way and
eliminate retail price competition.

Quite the contrary, where

retail price competition remained, for example in the sales of
e-book versions of romance novels and paperbacks, which were not
subject to agency pricing, LiVolsi readily admitted that BOB

17

remained uncompetitive.

In a May 2011 email to OverDrive,

LiVolsi wrote that “it’s become pretty obvious that no matter
how good a basic business you build or how efficiently you
manage it, deeper pockets than mine are essential when competing
in a world where the competitors are willing to lose big money
indefinitely.”
Moreover, even after BOB and its wholesale suppliers had
executed agency agreements with the Publisher Defendants, BOB
continued to experience inventory problems.

Many of the

important new titles were not available to BOB at all or were
not available until several days past the release date.

This

put BOB at a competitive disadvantage with e-book retailers who
had direct purchasing arrangements with publishers and no need
to rely on wholesalers.
In LiVolsi’s view, BOB was “effectively” finished in late
2011 and was “fundamentally done by 2012.”

The final blow to

its business occurred in the Fall of 2012, when BOB lost all
credit card processing privileges during an investigation into
potential hacking.

BOB estimated that it lost several hundred

thousand dollars due to this problem alone.

As of 2013, BOB

admitted that the “product outage” and the suspension of the
credit card payments had destroyed its reserves.
selling e-books on April 6, 2013.

18

BOB stopped

IV. BOB Brings Lawsuit against Publisher Defendants
As BOB’s internal documents reflect, it did not blame its
demise on the defendants’ adoption of agency agreements and the
elimination of retail price competition for many e-book titles.
Accordingly, it did not initially join the wave of antitrust
litigation filed against Apple and the Publisher Defendants.
Beginning on August 9, 2011, class action complaints were
filed against the defendants alleging violations of the Sherman
Act, culminating in a consolidated amended class action
complaint being filed on January 20, 2012.

In re Elec. Books

Antitrust Litig., 859 F. Supp. 2d 671, 680 (S.D.N.Y. 2012).

On

April 11, 2012, the Department of Justice and various States
filed antitrust lawsuits against the Defendants.
Defendants eventually settled these actions.

The Publisher

Apple, however,

proceeded to trial and was found liable in July 2013.

Apple

Inc., 952 F. Supp. 2d at 709.
It was not until Apple was found liable in 2013 that e-book
retailers filed individual lawsuits against Apple and the
Publisher Defendants.

Three such lawsuits were filed in 2013

and 2014, each alleging that the retailer was directly harmed by
the e-book price-fixing conspiracy.

DNAML Pty, Ltd. filed its

complaint on September 16, 2013; Lahovo, LLC filed its complaint
on March 14, 2014; and BOB filed its complaint on March 21,
2014.

19

BOB asserts two claims: (1) for violation of Section 1 of
the Sherman Act, 15 U.S.C. § 1; and (2) for violation of the
Donnelly Act, N.Y. Gen. Bus. Law § 340.

BOB alleges that its

business model was predicated on “aggressively pricing a wide
selection of e-books” and “offer[ing] a rewards program meant to
develop customer loyalty and encourage repeat business.”

BOB

further alleges that the implementation of the defendants’
agency model destroyed retail price competition and “forced
BooksOnBoard in line with everyone else by eliminating
competitive advantages” of “offering attractive prices, a
desirable rewards program, [and] attractive cross platform
support.”

BOB thus alleged that “[w]ithout an ability to

compete based on price -- upon which it predicated its business
model -– BooksOnBoard never recovered.”

After it reached a

settlement with BOB, Apple was dismissed from the case on April
21, 2015.
On September 18, 2015, the Publisher Defendants filed a
joint motion for summary judgment.

They argue that BOB cannot

show antitrust injury and that BOB’s failure was not caused by
the alleged conspiracy.

The motion was fully submitted on

October 31.
DISCUSSION
Summary judgment may not be granted unless all of the
submissions taken together “show[ ] that there is no genuine

20

dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Fed. R. Civ. P. 56(a).

“Summary

judgment is appropriate where the record taken as a whole could
not lead a rational trier of fact to find for the non-moving
party.”

Smith v. Cty. of Suffolk, 776 F.3d 114, 121 (2d Cir.

2015) (citation omitted).

The moving party bears the burden of

demonstrating the absence of a material factual question, and in
making this determination, the court must view all facts in the
light most favorable to the non-moving party.

Eastman Kodak Co.

v. Image Technical Servs., Inc., 504 U.S. 451, 456 (1992);
Gemmink v. Jay Peak Inc., 807 F.3d. 46, 48 (2d Cir. 2015).
Once the moving party has asserted facts showing that the
non-movant’s claims or affirmative defenses cannot be sustained,
“the party opposing summary judgment may not merely rest on the
allegations or denials of his pleading; rather his response, by
affidavits or otherwise as provided in the Rule, must set forth
specific facts demonstrating that there is a genuine issue for
trial.”

Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009)

(citation omitted); see Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986).

“[C]onclusory statements, conjecture, and

inadmissible evidence are insufficient to defeat summary
judgment,” Ridinger v. Dow Jones & Co. Inc., 651 F.3d 309, 317
(2d Cir. 2011) (citation omitted), as is “mere speculation or
conjecture as to the true nature of the facts.” Hicks v. Baines,

21

593 F.3d 159, 166 (2d Cir. 2010) (citation omitted).

Only

disputes over material facts -- “facts that might affect the
outcome of the suit under the governing law” -- will properly
preclude the entry of summary judgment.

Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986).
To succeed on its claims, BOB must show that it suffered an
antitrust injury.

Gatt Commc’ns, Inc. v. PMC Associates,

L.L.C., 711 F.3d 68, 81 (2d Cir. 2013).

Proving that a

plaintiff has suffered an antitrust injury requires, among other
things, proof that it suffered “the type of injury contemplated
by” the antitrust laws.

Cash & Henderson Drugs, Inc. v. Johnson

& Johnson, 799 F.3d 202, 214 (2d Cir. 2015) (citation omitted).
In particular, the plaintiff must demonstrate that its injury is
“of the type the antitrust laws were intended to prevent and
that flows from that which makes defendants’ acts unlawful.”
Atl. Richfield Co. v. USA Petroleum Co. (“ARCO”), 495 U.S. 328,
334 (1990) (citation omitted); see Gatt Commc’ns, Inc., 711 F.3d
at 76.

In other words, the plaintiff must show that any

business loss it suffers “stems from a competition-reducing
aspect or effect of the plaintiff’s behavior.”
at 344.

ARCO, 495 U.S.

Accordingly, a plaintiff cannot establish antitrust

injury where it “actually tended to benefit” from the alleged
conduct.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

22

U.S. 574, 586 (1986).
BOB must also establish a causal link between the violation
of the law and its claimed injury, specifically that “the
injuries alleged would not have occurred but for” the
defendants’ antitrust violation.

In re Publ’n Paper Antitrust

Litig., 690 F.3d 51, 66 (2d Cir. 2012) (citation omitted); see
also Argus Inc. v. Eastman Kodak Co., 801 F.2d 38, 41 (2d Cir.
1986).

A lack of causation in fact “is fatal to the merits of

any antitrust claim.”

Lotes Co. v. Hon Hai Precision Indus.

Co., 753 F.3d 395, 415 n.8 (2d Cir. 2014) (citation omitted).
To show causation, “[i]t is enough that the illegality is shown
to be a material cause of the [antitrust] injury; a plaintiff
need not exhaust all possible alternative sources of injury in
fulfilling [its] burden of proving compensable injury” since an
antitrust defendant’s unlawful conduct “need not be the sole
cause of the plaintiffs’ alleged injuries.”

In re Publ’n Paper

Antitrust Litig., 690 F.3d at 66 (citation omitted).

Rather,

“to prove a causal connection between the defendant’s unlawful
conduct and the plaintiff’s injury, the plaintiff need only
demonstrate that the defendant’s conduct was a substantial or
materially contributing factor” in producing that injury.”

Id.

(citation omitted).
New York’s antitrust statute, the Donnelly Act, is
“construed in light of Federal precedent and given a different

23

interpretation only where State policy, differences in the
statutory language or the legislative history justify such a
result.”
omitted).

Gatt Commc’ns, Inc., 711 F.3d at 81 (citation
The parties agree that their arguments apply equally

to BOB’s claims under the Donnelly Act as to its claims under
the Sherman Act.
BOB contends that the Publisher Defendants conspired with
each other and with Apple to eliminate price competition within
the retail market for e-books and to raise the price of e-books.
It argues that that conspiracy destroyed BOB’s business because
BOB could no longer offer e-books at discounted prices.

But,

BOB has not offered sufficient evidence to support this theory
of injury and causation, or raise a question of fact in this
regard.

As such it cannot establish antitrust injury or

causation in fact.
Drawing liberally from BOB’s own documents, which include
its contemporaneous understanding of its industry and the
pressures which caused it to fail, the defendants have presented
overwhelming evidence that their elimination of retail price
competition did not cause the demise of BOB’s business, and that
at the time BOB did not think it did.

As BOB acknowledged in

2010 and 2011, the end of retail price competition for a portion
of its business actually assisted BOB.

When selling titles as

an agent, it was no longer hamstrung by its inability to compete

24

on price with deeper-pocketed competitors, such as Amazon and
Barney & Noble.

Where retail price competition remained

available, which was the case for BOB’s “bread and butter” line
of e-book equivalents to paperbacks, BOB continued to be plagued
by price competition with its far larger and better-funded
competitors.
While it is unnecessary to determine precisely what factors
caused BOB to fail, several explanations emerge from the
evidentiary record.

Among the most prominent are BOB’s failure

to develop or become associated with any e-reading device; a
supply chain dependent on wholesalers rather than direct
relationships with publishers; and its relatively meager
financial resources.

Added to these pressures were the vagaries

that afflict many a start-up.

For instance, money it could ill

afford to spend was devoted to advertising and promotion
projects that failed to materialize or yield benefits, and an
employee created a duplicate website, which diverted customers.
As 2009 progressed, its wholesale suppliers became increasingly
reluctant to extend credit to BOB.

All of these difficulties

existed well before the Publisher Defendants adopted the agency
model in 2010.

Repeatedly, in advance of April 2010, BOB failed

to meet internal targets, struggled to maintain its cash
reserves, and underwent significant cost-cutting measures that
never succeeded in making the business profitable for even a

25

single quarter.18

Indeed, by the end of 2009, LiVolsi was hoping

to sell BOB.
In opposition to this motion for summary judgment, BOB has
relied principally on five sources of proof in support of its
contention that the Publisher Defendants’ adoption of the agency
model for the distribution of e-books destroyed BOB’s business.
None of this evidence succeeds, whether taken singly or
together, in raising a question of fact regarding causation.
First, BOB argues that discounting was essential to BOB’s
business strategy and the inability to discount the prices of
certain e-books during the agency period deprived it of a
critical tool in its competitive arsenal.

The extent to which

BOB’s business was predicated upon discounting and the
effectiveness of its discounting program are hotly disputed by
the parties.19

But, what cannot be disputed on this record is

While BOB does not need to demonstrate that it would have been
profitable absent the defendants’ antitrust conspiracy, its lack
of profitability at any point during its existence along with
the numerous other financial challenges presented in the record
provide compelling evidence that BOB’s overall business model
was failing during a period in which there was robust retail
price competition.
18

The defendants have offered evidence that, even with
discounting, the prices of BOB’s e-book versions of newly
released hardcover books were substantially higher than those of
its main competitors, Amazon and Barnes & Noble. BOB’s expert
disputes the defendants’ methodology and counters that, because
BOB could use price promotions as a marketing tool, BOB could
benefit from discounting even if it did not offer the lowest
prices in the marketplace.
19

26

that BOB could not compete effectively on price with the major
retailers who employed discounting, such as Amazon and Barnes &
Noble, particularly when both of those competitors also sold a
device for reading e-books to which BOB did not have access.20
Indeed, even after the agency distribution program went into
effect in April 2010 for certain e-books, BOB was unable to
compete on price with Amazon and other e-book retailers with
respect to the e-books for which discounting remained an option.
And, according to LiVolsi, the books that fell into this latter
category were its “bread and butter”.
Second, BOB argues that it has demonstrated causation
through proof that its supply of inventory was disrupted at the
time the agency distribution system went into effect, which it
calls the “product outage.”

To succeed on this claim,

plaintiff’s asserted injury from the product outage must be
“inextricably intertwined with the conduct’s anti-competitive
effects and thus flow[] from that which makes defendants’ acts
unlawful.”

In re DDAVP Direct Purchaser Antitrust Litig., 585

F.3d 677, 688 (2d Cir. 2009) (citation omitted) (addressing

While the plaintiff has offered an expert report in opposition
to this motion, its expert has not presented any analysis to
support a conclusion that the plaintiff was materially harmed by
agency pricing or that BOB could have succeed in a market that
did not have agency pricing. The expert merely notes that he
had “considered various alternative causes” for BOB’s failure
“to the degree needed . . . to render reliably” his opinion.
20

27

antitrust standing).
BOB has offered evidence that the product outage severely
damaged its business and argues that the outage was a
foreseeable consequence of the Publisher Defendants’ rapid
implementation of the agency model.

The temporary interruption

in the supply chain that accompanied the agency transition,
however, occurred independently of the “anti-competitive
effects” of that illegality.

The illegality alleged here is the

conspiracy to eliminate retail price competition for certain ebooks.

This lawsuit is not premised on a theory that the

Publisher Defendants conspired to eliminate e-book wholesalers
or harm independent retailers dependent on wholesalers.
Even if each of the Publisher Defendants responsible for
supplying BOB with e-books had independently decided to switch
to an agency model (as opposed to illegally conspiring to do
so), BOB would have experienced disruption to its inventory
because of its dependence on wholesalers.21

LiVolsi himself

acknowledged as much in proposed revisions to a Wikipedia entry
on the e-book industry, writing that “many pioneering eBook

DNAML, the plaintiff in a related antitrust case brought
against the same defendants, did not rely on wholesalers and had
a direct relationship with Hachette. At the time Hachette
adopted the agency model, DNAML experienced no product outage.
DNAML Pty, Ltd. v. Apple, 13-cv-6516, 2015 WL 9077075 (S.D.N.Y.
Dec. 16, 2015).
21

28

retailers close [sic] their doors, squeezed out not by the
agency scheme itself, but by the failure of the publishers to
work with the smaller long-term retailers in the wholesale
channel on a timely basis.”

The product outage was merely

incidental to the implementation of agency pricing and thus did
not “flow[] from that which makes the defendants’ acts
unlawful.”

Gatt Commc’ns, Inc., 711 F.3d at 76 (citation

omitted) (antitrust standing).
Third, BOB argues that the steep decline in its revenue
immediately after the implementation of agency pricing
demonstrates that its injury “flowed from” the antitrust
conspiracy.

But, this correlation in time is insufficient to

show causation.

The dramatic impact of the product outage on

BOB’s revenue eviscerates this claimed causal link.

Depending

on the timing of the revenue drop to prove that the conspiracy
caused its injury is a classic post hoc ergo propter hoc logical
fallacy.22

Cf. Rothstein v. UBS AG, 708 F.3d 82, 96 (2d Cir.

2013); Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d
Cir. 1997).
Fourth, BOB asserts that there is evidence from its revenue

Post hoc ergo propter hoc, translated as “after therefore
resulting from it,” refers to “the logical fallacy of assuming
that a causal relationship exists when acts or events are merely
sequential.” Black’s Law Dictionary (10th ed. 2014).
22

29

growth that it had a successful business before the conspiracy
went into effect in April 2010.

Acknowledging that it never

made a profit, BOB claims that its business model was predicated
instead on increasing its revenues and that those revenues grew
from 2008 until April 2010.
this argument.

There are two principal flaws in

First, BOB’s alleged focus on revenues, not

margins, is belied by LiVolsi’s frequently expressed concern in
2009 over BOB’s inability to show a profit.

For example, in

August of 2009, LiVolsi assured one of its wholesale suppliers
that BOB had a “hard focus on improving margins,” but admitted
that it was a “challenge” to compete with “40% discount as a
starting point against those with deeper pockets.”
But, even assuming that a destruction of revenue growth in
the Spring of 2010 would be sufficient to raise a question of
fact regarding whether the conspiracy led to the demise of BOB,23
BOB’s revenue figures do not gibe with its argument.

In the six

months before the agency pricing model went into effect, BOB’s
revenue growth (as measured from one quarter to the next) was
essentially flat.24

While BOB prefers to highlight its year-

Apparently, because the product outage had such a substantial
impact on BOB’s revenue, BOB has not tried to show that any
particular portion of the decline in revenue following March
2010 was separately attributable to the conspiracy.
23

Using the revenue numbers presented in BOB’s brief in
opposition to this motion, from the second to the third quarter
of 2009, BOB’s revenues increased by approximately 3%; from the
24

30

over-year growth, even those figures were rapidly shrinking in
the run up to agency.25
Finally, BOB relies on LiVolsi’s own opinions regarding the
impact of the agency model on his business to establish
causation.

One of these opinions was expressed in an email from

2010, the other opinions are expressed in his 2015 deposition
testimony and in his 2015 affidavit submitted in opposition to
this motion.

Assuming these opinions are admissible evidence of

causation,26 they do not create a question of fact regarding
causation that requires a trial.

The three opinions are as

third to the fourth quarter of 2009, BOB’s revenues increased by
0.2%; and, from the fourth quarter of 2009 to the first quarter
of 2010, BOB’s revenues increased by 0.7%.
BOB’s year-over-year progressively shrunk from 150% in April
2009 to a mere 21% by March 2010.
25

It is assumed that LiVolsi’s testimony about this aspect of
the business he founded and ran would be admissible as expert
opinion testimony under Fed. R. Evid. 702. In 2001, Rule 701
was amended to provide that testimony cannot be received as lay
opinion testimony if it is “based on scientific, technical, or
other specialized knowledge within the scope of Rule 702.” See
Fed. R. Evid. 701(c). Rather, a “lay opinion must be the
product of reasoning processes familiar to the average person in
everyday life.” United States v. Haynes, 729 F.3d 178, 195 (2d
Cir. 2013) (citation omitted). This rule “prevent[s] a party
from conflating expert and lay opinion testimony thereby
conferring an aura of expertise on a witness without satisfying
the reliability standard for expert testimony set forth in Rule
702.” Id. (citation omitted). In contrast, the many statements
by LiVolsi in emails and correspondence offered by the
defendants describing BOB’s financial troubles and the benefits
of agency are admissible as admissions by a party-opponent. See
Fed. R. Evid. 801(d)(2).
26

31

follows.
In an email to an investor on March 24, 2010, LiVolsi
recommended accepting OverDrive’s offer to acquire BOB,
observing that “Overdrive has moved a little.

Agency pricing is

scaring the heck out of me so I think it might be wise to go
forward with this deal where it is.”

LiVolsi does not elaborate

in this email on what about agency pricing scared him.
Acknowledging, however, that BOB had yet to make a profit and
had no immediate prospect of doing so, LiVolsi added that
OverDrive’s offer was “not a big return, but something bigger
than no return.”

The email proceeds to highlight four other

reasons to take the OverDrive offer, including that Barnes &
Noble had “over 200 developers working on their site” and that
“most concerning, entry of B&N and the much more crowded field
has resulted in far fewer natural search visits [to BOB’s
website].”
BOB also relies on parts of LiVolsi’s 2015 deposition
testimony attesting that, despite his many statements in 2010
and 2011 documents to the contrary, he was indeed worried in
2010 about the impact of the agency system on BOB.

Similarly,

BOB relies on LiVolsi’s revelation in his 2015 affidavit in
opposition to this motion that, after getting formal
notification on March 12, 2010 of the specifics of the agency
program from one of his wholesalers, he contacted two government

32

agencies between March and June 2010 to express his concern over
agency pricing, specifically, that the “agency scheme was
depriving customers of discounts and choice” and would result in
higher prices for e-books.27

LiVolsi asserts that he also

expressed concern that BOB would be unable to retain its
customers and that many e-book retailers would be driven out of
business.

LiVolsi does not provide any notes or correspondence

from these meetings to confirm precisely what opinions or
observations he conveyed to these government officials in 2010.
As already described, these opinions stand in sharp
contrast to the documentary record from 2009 to 2011.

BOB could

not and did not compete successfully in the pre-agency period
against larger companies that offered deeper discounts than BOB
was prepared or able to offer.

Accordingly, BOB’s documents

reflect LiVolsi’s view that the elimination of price competition
through the adoption of the agency distribution model would
actually assist BOB.28

LiVolsi expressed this view internally

LiVolsi attests that he spoke with an Assistant United States
Attorney in the United States Department of Justice Antitrust
Division and met with representatives of the Texas Attorney
General’s Office. Lead Counsel in the parens patriae antitrust
action filed in 2012 against Apple and the Publisher Defendants
included counsel from the State of Texas’ Attorney General’s
Office.
27

Many of Livosli’s statements were made to investors to whom he
would have owed a duty of honesty. See, e.g., Chris–Craft
Indus., Inc. v. Piper Aircraft Corp., 480 F.2d 341, 364 (2d Cir.
1973) (“Corporate officers and directors in their relations with
28

33

and in communications with others.

Thus, while LiVolsi was very

concerned with the product outage issue and its impact on small
e-book retailers, the documentary record does not reflect a
belief that the switch to an agency distribution model per se
would harm BOB or had harmed BOB.

After the dust had settled,

and the agency model had been fully implemented by the Publisher
Defendants, LiVolsi’s drafted Wikipedia entry of 2011 denied
that agency pricing presented a problem.

He complained only of

the impact the product outage had had on small e-book retailers.
In the face of the many contemporaneous statements by
LiVolsi that contradict the opinions on which BOB relies in
opposing this motion, these opinions do not create a genuine
dispute as to LiVolsi’s mindset in 2010, much less a genuine
dispute as to whether the elimination of retail price
competition actually inflicted harm on BOB in 2010.

See, e.g.,

AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d
699, 735-36 (2d Cir. 2010) (evidence created after summary
judgment was filed could not raise an issue of fact where it was
contradicted by documents created at the same time as the
transaction at issue).

Such testimony, “unsupported by

documentary or other concrete evidence . . . , is simply not

shareholders owe a high fiduciary duty of honesty and fair
dealing.”).

34

enough to create a genuine issue of fact in light of the
evidence to the contrary.”

Argus Inc., 801 F.2d at 45.

In sum, BOB was engaged in an uphill battle to succeed as
an e-book retailer in the face of competition from Amazon,
Barnes & Noble and others.

It viewed the adoption of the agency

model as something that would assist it, and there is every
reason to accept its judgment on that score as accurate.
Ultimately, BOB failed as a business.

While BOB closed its

doors after the Publisher Defendants conspired to eliminate
retail price competition in a significant portion of the e-book
market, BOB has not presented sufficient evidence to permit a
jury to find that the failure of its business was due to that
conspiracy.
CONCLUSION
The Publisher Defendants’ September 18 motion for summary
judgment is granted and the claims asserted in this action are
dismissed with prejudice.

The Clerk of Court shall close the

case.
SO ORDERED:
Dated:

New York, New York
January 22, 2016
__________________________________
DENISE COTE
United States District Judge

35