The State of Texas et al v. Penguin Group (USA) Inc. et al

Filing 1

COMPLAINT for Injunctive Relief, Civil Penalties and as Parens Patriae on behalf of Consumers ( Filing fee $ 350 receipt number 100013497), filed by The State of Vermont, The State of Tennessee, The State of Missouri, The Commonwealth of Pennsylvania, The State of Iowa, The State of Texas, The State of Colorado, The Commonwealth of Puerto Rico, The State of Illinois, The State of Alaska, The State of Connecticut, The State of Ohio, The State of West Virginia, The State of Arizona, The State of Maryland, The State of South Dakota. (Attachments: # 1 /List of Attorneys/Receipt)(klw, ) (Additional attachment(s) added on 4/12/2012: # 2 SEALED Unredacted Version of Complaint) (klw, ).

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

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29121$PR

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THE STATE OF TEXAS;
THE STATE OF CONNECTICUT;
THE STATE OF ALASKA;
THE STATE OF ARIZONA;
THE STATE OF COLORADO;
THE STATE OF ILLINOIS;
THE STATE OF IOWA;
THE STATE OF MARYLAND;
THE STATE OF MISSOURI;
THE STATE OF OHIO;
THE COMMONWEALTH OF PENNSYLVANIA;
THE COMMONWEALTH OF PUERTO RICO;
THE STATE OF SOUTH DAKOTA;
THE STATE OF TENNESSEE;
THE STATE OF VERMONT; and
THE STATE OF WEST VIRGINIA;

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Al 2CV0324 LV
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Plaintiffs,

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Civil Action No.

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V.

PENGUIN GROUP (USA) INC.;
MACMILLAN HOLDINGS, LLC;
SIMON & SCHUSTER, INC.;
SIMON & SCHUSTER DIGITAL SALES, INC.; and
APPLE INC.;

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Public Version

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Defendants.

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COMPLAINT FOR INJUNCTIVE RELIEF, CIVIL PENALTIES &
AS PARENS PATRIAE ON BEHALF OF CONSUMERS

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The States of Texas, Connecticut, Alaska, Arizona, Colorado, Illinois, Iowa, Maryland,

Missouri, Ohio, South Dakota, Tennessee, Vermont, and West Virginia and the Commonwealths

of Pennsylvania and Puerto Rico (the "Plaintiff States"), by and through their Attorneys General,
bring this action against Penguin Group (USA) Inc. ("Penguin"), Macmillan Holdings, LLC

("Macmillan"), Simon & Schuster, Inc. and Simon & Schuster Digital Sales, Inc. (collectively

"Simon & Schuster") and Apple Inc. ("Apple") (collectively, "the Defendants") and allege as
follows:

I. SUMMARY OF COMPLAINT
As a result of facts learned during a non-public investigation begun by the State of

Texas in March 2010, the Plaintiff States charge Macmillan, Penguin, Simon & Schuster, and
Apple with entering into contracts, combinations, and conspiracies that restrain trade.
2.

Specifically, by the end of summer 2009 at the latest, Hachette, HarperCollins,

Macmillan, Penguin, and Simon & Schuster (collectively, "the Conspiring Publishers" or "the
Publishers") entered into an agreement to raise the retail price of electronic books ("e-books").
In furtherance of this conspiracy, by mid-December 2009, Macmillan, Simon & Schuster,

Hachette, and HarperCollins agreed to delay publication of certain frontlist e-books for several

months following each book's first printed release. In the publishing industry, this practice is

known as "Windowing." These four Publishers viewed this collective Windowing as providing
them with enhanced bargaining power with which they could negotiate higher retail prices from
Amazon and other distribution outlets (collectively, "the Outlets")
3.

No later than January 2010, Apple joined Hachette, HarperCollins, Macmillan,
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Penguin, and Simon & Schuster's conspiracy and facilitated the Publishers' direct
implementation of the agreement to increase e-book prices. Apple played a facilitating role by
bringing the Conspiring Publishers into agreement with one another on a scheme to raise retail
prices. The scheme had two components. First, the Conspiring Publishers would shift their

marketwide distribution model for e-books from a Wholesale-Retail Model, in which distribution
Outlets such as Amazon or Barnes & Noble set retail e-book prices and sell e-books directly to
consumers, to an Agency Model, in which the Publishers set retail e-book prices and sell e-books
directly to consumers. Second, the Conspiring Publishers would then raise retail prices.
4.

As a result of their conspiracy with Apple, Macmillan, Penguin, Simon &

Schuster, Hachette, and HarperCollins agreed to eliminate e-book retail price competition

between Apple and Amazon and other Outlets. The agreement also ensured that Apple earned a
30% gross margin on e-books. The Conspiring Publishers and Apple increased e-book retail

prices pursuant to this illegal agreement beginning on April

1,

2010.

As a result of the conspiracy, consumers nationwide, in aggregate, paid

substantially more than one hundred million dollars in overcharges on e-books. As of the filing

of this Complaint, these overcharges are ongoing.
6.

The Plaintiff States seek a finding that the Defendants' actions violated federal

and state antitrust laws; a permanent injunction preventing the Defendants from continuing their

illegal conduct and rectifying ongoing anticompetitive effects caused by their illegal conduct;
damages on behalf of natural persons located in the Plaintiff States; civil penalties; and other

relief for injuries sustained as a result of Defendants' violations of law.

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II. JURISDICTION & VENUE
7.

U.S.C.
§

§ 1,

The Court has jurisdiction over this action under Section 1 of the Sherman Act, 15

Sections 4c and 16 of the Clayton Act, 15 U.S.C.

§

15c & 26, and under 28 U.S.C.

1331 and 1337.
8.

In addition to pleading violations of federal law, the Plaintiff States also allege

violations of state law, as set forth below, and seek civil penalties and equitable relief under those
state laws. All claims under federal and state law are based upon a common nucleus of operative
fact, and the entire action commenced by this Complaint constitutes a single case that would

ordinarily be tried in one judicial proceeding. This Court has jurisdiction over the non-federal
claims under 28 U.S.C.

§

1367(a), as well as under principles of pendent jurisdiction. Pendent

jurisdiction will avoid unnecessary duplication and multiplicity of actions, and should be
exercised in the interests of judicial economy, convenience and fairness.
9.

This Court may exercise personal jurisdiction over all of the Defendants because

all of the Defendants currently transact business in the Austin Division of the Western District of

Texas. Specifically, the Publishers sell e-books to consumers residing in the Austin Division,

and Apple distributes e-books and sells e-book reading devices to consumers residing in the

Austin Division.
10.

Venue is proper in this district under Section 12 of the Clayton Act, 15 U.S.C.

22, and 28 U.S.C.

§

§

1391(b)-(c). The Defendants all may be found and transact business within

the Austin Division of the Western District of Texas.

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III. THE PARTIES

II.

The Attorneys General of the Plaintiff States are the chief legal officers for their

respective states and commonwealths. They are granted authority under federal antitrust law to
bring actions for injunctive relief and as parens patriae on behalf of consumers, and under the
laws of their respective states to bring actions to ensure compliance with their state laws and to
enjoin violations of state law.
12.

Defendant Macmillan Holdings, LLC, formerly known as Holtzbrinck Publishing

Holdings, LP ("Macmillan"), is a group of publishing companies in the United States ultimately
owned by Georg von Holtzbrinck GmbH & Co. KG, which is based in Stuttgart, Germany.

Macmillan is a corporation organized and existing under the laws of the State of New York with its
principal place of business at 175 Fifth Avenue, New York, New York 10010.
13.

Defendant Penguin Group (USA) Inc. ("Penguin") is the U.S. affiliate of the Penguin

Group, the incorporated division of parent Pearson PLC that oversees publishing operations.

Penguin is a corporation organized and existing under the laws of the State of Delaware, with its

principal place of business at 375 Hudson Street, New York, New York 10014.
14.

Defendant Simon & Schuster, Inc. is the publishing operation of CBS Corporation.

Simon & Schuster, Inc. is a corporation organized and existing under the laws of the State of New
York, with its principal place of business at 1230 Avenue of the Americas, New York, New York,
10020. Defendant Simon & Schuster Digital Sales, Inc. is a wholly-owned subsidiary of Simon &

Schuster, Inc., organized and existing under the laws of the State of Delaware, with its principal

place of business at the same address as its parent. For purposes of the Complaint, Simon &
Schuster, Inc. and Simon & Schuster Digital Sales, Inc. are referred to collectively as "Simon &
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Schuster."
15.

Defendant Apple Inc. ("Apple") is a corporation organized and existing under the

laws of the State of California, with its principal place of business at

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Infinite Loop, Cupertino,

California 95014.

IV. FACTS SUPPORTING THE LEGAL CLAIMS
A.

Book Sales: An Overview
16.

Publishers work with authors to bring books to market in a variety of printed and

other formats, including hardcover, trade paperback and mass market paperback.
17.

The American publishing industry is dominated by six Manhattan-based

publishers: Hachette, HarperCollins, Macmillan, Penguin, Random House and Simon &
Schuster (the "Big Six"). For decades, the Big Six or their predecessors have served as authors'

primary intermediaries to secure widespread retail print distribution and marketing. Collectively,
the Big Six publishers are responsible for approximately 60% of all revenue generated from print

titles sold in the United States, including 85% of all revenue generated from the sale of New
York Times ("NYT")-Bestsellers. As of 2009, these publishers' revenue-based market shares for

print titles sold in the United States were as follows: Hachette (10%), HarperCollins (9.8%),
Macmillan (5.4%), Penguin (11.3%), Random House (17.5%) and Simon & Schuster (9.1%).
18.

Publishers generally sell printed books to retailers on a Wholesale-Retail Model. In

the Wholesale-Retail Model, publishers set a list price for the printed book and a discount percentage
from the list price for a particular Outlet. The list price minus the amount discounted is the

wholesale price of the printed book. For example, a hardcover book with a list price of $30.00 that

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has a discount off list of 50% has a wholesale price of $15.00.
19.

In the Wholesale-Retail Model, Publishers generally bear the costs of printing

physical books. They also bear the costs of returns of unsold inventory.
20.

Once the books are received by the Outlets, the Outlets place printed books into

their inventories for storage, set retail prices for these books, and sell them directly to consumers.
21.

Publishers divide their catalogues between frontlist and backlist titles. Frontlist

titles refer to the publishers' most recently released titles. Depending on the publisher, it usually
refers to titles released within the past seven months to the past year. Backlist titles comprise the

remainder of the publishers' catalogues.
22.

For books released in hardcover format, among printed formats, publishers

typically make only the hardcover book available for a period of time. Hardcover books

command the highest wholesale prices among the print formats and publishers typically set the
list prices of hardcover books higher than other print formats.
23.

After some period of time, publishers may release a lower-priced trade paperback

version of the title and, after additional time, an even lower priced mass market paperback
version. For books not released in hardcover, publishers will release a trade paperback or mass
market paperback version as the first edition.
24.

E-books are electronic versions of books. Generally, the Big Six provide a printed

edition of a title simultaneously with the e-book. Consumers can read e-books on a variety of
electronic devices, including cellular phones, personal computers, tablet computers, and devices
dedicated solely to reading e-books ("dedicated e-readers"). E-book consumers cannot resell ebooks and face strict limitations on e-book lending. E-books offer consumers greater portability
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than most print books and some dedicated e-readers allow e-book consumers to purchase the ebooks within minutes, as opposed to waiting for delivery or visiting a brick-and-mortar
bookstore.
25.

Despite their availability for approximately two decades, e-books have only

recently become a commercially-viable mainstream market. Between 2007 and 2011, e-books'
share of all titles sold in the United States grew from under 2% to approximately 25%. In 2010,

approximately 114 million e-books were sold, and e-book sales hit $441.3 million.
26.

Historically, as with printed book distribution, an Outlet would pay the publisher a

wholesale price for each e-book sold. The wholesale price was calculated by subtracting a
discounted amount from the digital list price. For example, if an e-book had a digital list price of
$26.00 and a discount of 50%, the wholesale price was $13.00. The Outlet would then set the

retail price of the e-book, functioning as a retailer.
27.

By 2009, Amazon accounted for the vast majority of the Publishers' e-book sales,

conservatively estimated at upwards of 80%. Among other reasons, Amazon earned this leading
position by its substantial investments in developing the leading dedicated e-reader, the Amazon
Kindle. Unique among dedicated reading devices at the time of its introduction, the Amazon
Kindle allowed a consumer to download a book wirelessly directly onto the device, thus making
newly published e-book titles easily accessible to consumers. Also, Amazon made substantial

efforts to offer a greater selection of e-books to readers.
28.

Additionally, in the fall of 2007, shortly after releasing the Kindle, Amazon

publicly committed to sell NYT-Bestselling e-books to consumers for $9.99, a retail price point

popular with consumers. This low price point helped make it attractive for consumers to switch
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from purchasing print books to purchasing e-books.
29.

As the leading e-book retailer, Amazon's $9.99 pricing policy for NYT-

Bestselling e-books stoked intense competition among e-book retailers as its rivals priced at or

near Amazon's price point to remain competitive. As a result, prior to January 2010, consumers
could generally purchase NYT-Bestselling e-books for $9.99 contemporaneously with hardcover
releases.
B.

The Conspiring Publishers Agree that NYT-Bestselling E-book Prices Must Rise
from $9.99
30.

Amazon's low retail pricing and leading position among e-book retailers gave rise

to serious concerns for the Conspiring Publishers. First, the Conspiring Publishers feared that, as
e-books sales grew larger in the future, Amazon would utilize its significant bargaining clout as
the leading e-book retailer to seek lower wholesale e-book prices.
31.

Second, as e-book sales grew as a percentage of all books purchased, the

Conspiring Publishers feared increased competition from electronic-only publishers. In the

market for printed books, the publishers' competitive advantage is derived, in substantial part,
from their long-established distribution systems. In a robust e-books market, e-book only

publishers could compete without relying on those long-established distribution systems. B-book
only publishers could enhance consumer choice, meet consumer demand, and provide innovative

distribution. The Conspiring Publishers feared that Amazon would emerge as a direct competitor
by contracting directly with authors to publish its own e-books.
32.

Third, the Conspiring Publishers were concerned that sales of lower priced e-

books would cannibalize sales of printed books; i.e., the Conspiring Publishers were concerned

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that increased sales of e-books would reduce sales of as higher priced printed editions of the
same books.
33.

Because of these concerns, the Conspiring Publishers, individually and

collectively, began searching for a path to higher prices for NYT-Bestselling e-books.
34.

Starting no later than summer 2008 and continuing throughout 2009 on a regular

basis, CEOs representing the Big Six Publishers began attending exclusive dinners organized in
private rooms at elite New York restaurants. At these meetings, the attending Big Six

Publishers' CEOs discussed sensitive business matters, including concerns related to e-books and
Amazon. No antitrust counsel attended any of the dinners.
35.

As of late 2008, Simon & Schuster charged wholesale prices for frontlist e-books

that were lower than their wholesale prices for hardcover printed editions of the same title. Most

of the other Conspiring Publishers already charged wholesale prices equivalent or roughly
equivalent to hardcover print wholesale prices for these titles. By early 2009, Simon & Schuster
raised its wholesale prices for e-books released simultaneously with hardcover books, including

NYT-Bestsellers, to parity (or near parity) with hardcover editions of the same titles. By raising
its e-book wholesale prices, Simon & Schuster hoped to cause the e-book Outlets to raise their e-

book retail prices. However, despite the increase in wholesale prices, Amazon and other e-book
retailers continued offering NYT-Bestselling e-books at $9.99.
36.

Beginning in early 2009, Macmillan, Simon & Schuster and one other Conspiring

Publisher each independently considered, but did not adopt, alternative distribution models to

restrain retailers from discounting the price for sales of their e-book titles. The alternative
distribution methods considered by the publishers included banning retailers from discounting e10

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books (known as "Resale Price Maintenance") or preventing retailers from advertising any

discounted e-book prices (known as "Minimum Advertised Price"). None of the publishers that
considered adopting one of these two strategies was ultimately willing to adopt such a strategy
unilaterally, because of the substantial risks to individual publishers of acting alone.
37.

Macmillan also considered adopting Windowing (delaying publication of certain

frontlist titles as e-books for several months after the books were released in print) for the sale of

certain books. Macmillan ultimately decided not to pursue Windowing independently, because

of the substantial risks it would face from acting alone.
38.

During the last week of July 2009, an executive from the parent company of one

of the Conspiring Publishers met with the other Publishers' executives in New York to discuss a
joint venture that would ostensibly create a competitive platform to Amazon. This executive
already believed that this joint venture would primarily serve another purpose: forcing Amazon
to charge higher retail prices. He informed his superior that he was making progress on this

strategy with the other Conspiring Publishers and received positive feedback.
39.

On August 19, 2009, one of the Conspiring Publisher's executives sent Macmillan

CEO John Sargent and Macmillan President Brian Napack a fax discussing his company's

proposal for improving e-book prices.
He wrote,
He added,

40.

By the summer of 2009, it was clear to all of the Conspiring Publishers that, only

by working together, could they successfully force Amazon and other e-book retailers to raise
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their prices for NYT-Bestsellers. Specifically, any successful method to raise the price of e-

books would require the Conspiring Publishers to overcome two obstacles. First, the publishers
would need to acquire enough bargaining power to coerce Amazon into ending its practice of
pricing NYT-Bestselling e-books at $9.99. In the absence of such collective bargaining power,
Amazon could retaliate against individual publishers by delisting their e-books and print books

from its website. Second, the Conspiring Publishers needed to implement their new pricing
structure contemporaneously. Otherwise, each Publisher would lose sales to lower priced ebooks, because the retail prices of its books would rise too high relative to the retail prices of the
others.
41.

On information and belief, by no later than the end of summer 2009, the

Conspiring Publishers reached an agreement that something had to be done to end Amazon's
$9.99 pricing of NYT-Bestsellers and they were collectively searching for the means to effectuate
a price increase.

C.

Windowing: The First Collective Attempt to Raise Prices
42.

In fall 2009, Simon & Schuster and two other Conspiring Publishers began

experimenting with Windowing certain frontlist ebooks. By early December 2009, these three
Publishers agreed to Window a broad number of titles as a means of gaining bargaining leverage

over Amazon. By December 15, 2009, Macmillan agreed to join these three Publishers in

Windowing certain frontlist titles.
43.

Months before announcing that they would experiment with Windowing certain

titles, certain Publishers shared information among one another about which titles they would
Window and their anticipated delay period for e-book publication.
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44.

In an August 14, 2009 e-mail, an executive for one of the Conspiring Publishers

wrote to his boss discussing Amazon's practice of pricing NYT-Bestselling e-books at $9.99.
The e-mail also included a detailed account of Simon & Schuster's plans to Window the e-book
release of its upcoming Stephen King title, Under the Dome. Simon & Schuster had yet to
announce publicly its Windowing plans, but Simon & Schuster CEO Carolyn Reidy provided the
executive with this information confidentially. At the conclusion of the e-mail,
a method used to prevent its

preservation and discovery.
45.

In a September 23, 2009 e-mail by Carolyn Reidy, CEO of Simon & Schuster, to

Les Moonves, the CEO of Simon & Schuster's parent corporation CBS, she discussed the

possible Windowing of the upcoming release of Stephen King's new novel Under the Dome.

Reidy' s e-mail concludes by suggesting collective action:

46.

By late September 2009, as their agreement to implement Windowing came in

place, the Conspiring Publishers considering Windowing referenced themselves in one email as

47.

On October 20, 2009, Barnes & Noble held a launch party for its Nook e-reader at

Chelsea Piers. Many Conspiring Publisher CEOs, including Simon & Schuster CEO Carolyn
Reidy, Macmillan CEO John Sargent, and Penguin CEO David Shanks, as well as other

Conspiring Publisher executives, attended the launch party. These three CEOs discussed

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Windowing at this event.
48.

By early December 2009, Simon & Schuster and the two other Conspiring

Publishers had reached an agreement to broadly Window frontlist titles as a method of

effectuating their agreement to raise frontlist e-book prices.
49.

On December 7, 2009, Simon & Schuster informed Amazon that it would begin

Windowing titles. The next day, December 8, 2009, Simon & Schuster became the first major

publisher to announce systematic Windowing of e-book versions of its frontlist titles. Simon &

Schuster's announcement stated that the printed versions of its frontlist titles would be available
in the first half of 2010, but that it would delay the release of certain of these titles as e-books by

approximately four months.
50.

On December 8, 2009, an executive for one of the Conspiring Publishers also

announced that it had similar plans to Window frontlist, best-selling e-book titles for three to

four months. Contemporaneously, this executive stated publicly that Hachette had decided on
this strategy "to preserve our industry."
51.

On December 9, 2009, the other Conspiring Publisher announced that it would

Window five to ten e-book titles per month, beginning in January 2010.
52.

The three Publishers' Windowing announcements were followed almost

immediately by a series of communications with Macmillan. These communications provided

ample opportunity to recruit Macmillan to pursue Windowing.
53.

On December 9, 2009, an executive for the parent of one of the Conspiring

Publishers forwarded by e-mail an article about Simon & Schuster and another Conspiring

Publisher's Windowing plans to Stefan von Holtzbrinck, Chairman of Macmillan's parent
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company Verlagsgruppe Georg von Holtzbrinck. He wrote

54.

On December 10, 2009, Simon & Schuster CEO Carolyn Reidy discussed

systematic Windowing of e-books with Macmillan executive Stephen Rubin, a friend and former

colleague of Reidy' s. In an e-mail to Macmillan CEO John Sargent recounting part of their
conversation, Mr. Rubin wrote,

55.

On or about December 15, 2009, Macmillan joined the agreement with the other

three Publishers. On December 15, 2009, Macmillan announced that it would also systematically
Window frontlist, bestselling e-books.
56.

Windowing unilaterally would have been against each Publisher's economic self-

interest, because it would introduce substantial economic risks. These risks included consumers

purchasing e-books from other publishers' non-Windowed e-books, negative consumer reviews
online related solely to Windowing, and potential retaliation from Amazon. By agreeing to act

together, these risks were substantially reduced.
57.

Only Simon & Schuster and the two other Conspiring Publishers broadly

Windowed e-book titles. These three Publishers delayed these titles roughly from December 26,
2009 through April 1, 2010. The delay in publication constituted an illegal restriction on output

to the detriment of consumers. Macmillan ultimately did not broadly Window e-books.
58.

As set forth below, the agreement among the Conspiring Publishers to raise prices

via the Agency Model made Windowing unnecessary.

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D.

The Publishers and Apple Agree to Raise E-book Prices Using the Agency Model
59.

In a series of negotiations beginning in December 2009 and culminating in late

January 2010, Apple facilitated the Publishers' agreement on a scheme to raise frontlist e-book
retail prices. First, the Conspiring Publishers would collectively impose the Agency Model of

distribution on all of their Outlets. Second, the Conspiring Publishers would use their pricing
authority under the Agency Model to raise all frontlist e-book prices directly. For example, the
Conspiring Publishers and Apple agreed that NYT-Bestsellers would be priced at either $12.99
or $14.99. By January 27, 2010, the Publishers had agreed among themselves and with Apple to

implement this scheme. By April

1,

2010, after having converted all or almost all of their Outlets

to the Agency Model, the Publishers began to implement higher retail e-book prices.
60.

In mid-December 2009, Apple approached the Conspiring Publishers about

becoming an e-book Outlet. Apple planned to release its iPad tablet computer in early 2010 and
wanted to supply e-books to iPad customers in its iBookstore. Apple learned during these
meetings that, on some NYT-Bestselling titles, the Conspiring Publishers were charging a

wholesale e-book price to Amazon greater than Amazon's $9.99 retail e-book price. (Amazon
was willing to sell such titles at a loss because its sales of e-books were profitable overall.)

Apple does not generally sell any content below cost, and wanted each and every e-book title
sold via the iBookstore to contribute to its profits.
61.

During Apple's meetings with two of the Conspiring Publishers, these Publishers

proposed to Apple a distribution strategy known as the "Agency Model." Under the Agency
Model, the Publisher would be the direct seller of e-books to consumers, setting the retail price
for each e-book sold. Apple would act as an agent that facilitates the sale and would receive a
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commission on each e-book sold through the iBookstore. Because Apple would receive a
commission on each sale, it would make a profit on every e-book title it sold.
62.

Between these meetings and the end of 2009, Apple communicated with

Macmillan and Simon & Schuster about the Agency Model.
63.

Between January 4, 2010 and January 6, 2010, Eddy Cue, Apple's Vice President

of Internet Sales and lead negotiator, sent a separate e-mail to each of the Conspiring Publishers'
CEOs. These c-mails presented Apple's initial terms for e-book distribution contracts with each

Publisher. These terms included an Agency Model relationship and a 30% commission on
individual books. Additionally, Apple demanded price bands that would ostensibly set

maximum prices for certain frontlist e-books, including NYT-Bestsellers.
64.

Apple's proposal was simple: the Conspiring Publishers would collectively adopt

the Agency Model across all of their Outlets and then use their pricing authority under the
Agency Model to raise e-book prices to consumers across all of these Outlets. From this time

forward, at the latest, Apple was actively seeking to bring the Publishers into a collective

agreement to use Agency Model as a mechanism to raise e-book retail prices marketwide.
65.

Apple's c-mails made clear to Macmillan and Penguin that the other Publishers

would participate in this common plan, stating at the outset that Apple had talked to

66.

Among Eddy Cue's list of

On information and belief,
67.

is code for "higher prices."

As negotiations unfolded, Apple facilitated an agreement among the Conspiring

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Publishers to price NYT-Bestselling e-books at the maximum level permitted by the price bands,
and all other frontlist titles at or close to the maximum. Apple did this by providing implicit and

explicit assurances to the Conspiring Publishers that other Publishers in the conspiracy would
price at the maximum permitted by the price bands. At the same time, representatives of the
Conspiring Publishers called each other on a regular basis to confirm that they were agreeing to

Apple's scheme.
68.

On January 11, 2010, Apple attached to, or included with, e-mails to Penguin,

Simon & Schuster and one other Conspiring Publisher a chart showing each Publisher's NYT-

Bestselling e-book titles priced at $12.99 on the iBookstore.
69.

On January 11, 2010, Macmillan CEO John Sargent sent Eddy Cue an e-mail

asking Apple to reduce the commissions it would receive on frontlist, bestselling e-books. He
wrote,

70.

A move by a single Publisher to convert all of its Outlets to the Agency Model

would have been against that Publisher's unilateral self-interest. First, any single Publisher
would have faced potential retaliation from Amazon, which had made clear to the Conspiring

Publishers that it viewed the $9.99 e-book price as an effective marketing mechanism to drive

consumer purchases. Second, even if a single Publisher succeeded in adopting the Agency
Model, it would not be able to raise prices without concern that consumers would turn to other

Publishers' e-books that the Outlets priced lower under a Wholesale-Retail Model. The
Conspiring Publishers would not have agreed to the adoption of the Agency Model to raise
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prices, but for the assurances that a sufficient number of the other Publishers would participate.
71.

Simon & Schuster CEO Carolyn Reidy took handwritten notes on a printed copy

of an Apple e-mail of January

16, 2010 in which she underscored the collective nature

of the

Agency Model scheme. She wrote,
72.

By January 21, 2010, the negotiations between Apple and the Conspiring

Publishers had reached a fever pitch. Apple had told the Publishers that it would announce the
launch of the iPad on January 27, 2010 and that it would require the agreement of a critical mass

of the Conspiring Publishers to move forward with the iBookstore at the launch. In connection
with this timeline, at some point in the negotiations, Apple told Macmillan that a deal would
need to be completed by Thursday, January 21, 2010. On that day, Apple CEO Steve Jobs would
hold a rehearsal for the launch of Apple's iPad on Wednesday of the following week.
73.

On or about January 21, 2010, Apple sent e-mails to the various Conspiring

Publishers stating that it was near completing or had completed an agreement with another
Publisher. On January 21, 2010, the Conspiring Publishers' CEOs began to call one another by

telephone. These calls were made to confirm whether competing Publishers would agree to join
the Agency Model scheme.
74.

Below are charts depicting telephone calls in both duration and absolute number

of calls among executives of four of the Conspiring Publishers from November 2009 through
February 2010. These charts depict calls from the executives' office landlines, cell phones and
home telephones. This time period includes both the Windowing and Agency Model schemes to
raise e-book prices:

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.

On information and belief, although no included in the previous charts, the telephone

records of either John Makinson or David Shanks of Penguin would show calls to other Publishers
during this time period.
76.

On January 21, 2010, at 10:50 am, a Conspiring Publisher executive wrote to the

CEO of its parent corporation by e-mail:

77.

On January 21, 2010, Eddy Cue wrote in an e-mail to a Conspiring Publisher

executive,

78.

On Saturday, January 22, Penguin CEO David Shanks contacted Apple's

negotiator Eddie Cue. As Mr. Cue reported to Steve Jobs, Shanks

79.

Also on January 22, 2010, an executive of a Conspiring Publisher sent an e-mail

to an officer of the parent corporation stating that

On information and belief, the CEO obtained this information from Apple.
80.

At some subsequent point during the negotiations, Apple's Eddy Cue informed an
22

.

.

executive of a Conspiring Publisher that Macmillan had agreed to move forward with the Agency
Model on Apple's terms.
81.

The executive for the Conspiring Publisher then called Macmillan CEO John

Sargent to confirm whether Macmillan would agree to Apple's proposal. Sargent confirmed that

it would. The executive informed John Sargent that his company likely would not. On
information and belief, this phone call is one of those depicted on the charts above.
82.

During a conversation between Macmillan CEO John Sargent and Simon &

Schuster CEO Carolyn Reidy prior to Simon & Schuster signing its Agreement with Apple, Mr.
Sargent stated that Macmillan was going to pursue the Agency Model and thought it was the
future of publishing.
83.

After Eddy Cue could not secure one of the Conspiring Publisher's commitment

directly from an executive, Apple turned to its parent. At this point, Apple CEO Steve Jobs
became directly involved in negotiations. On January 24, 2010, following an exchange of e-

mails, Mr. Jobs wrote to an executive at the parent company, in part:

23

I
84.

.

Within three days of Mr. Jobs' email, by January 27, 2010, the Conspiring

Publisher he contacted, along with the other Conspiring Publishers, had agreed to the Agency
Model scheme and signed a formal, Agency Model distribution contract with Apple.
85.

On Wednesday, January 27, 2010, in his public demonstration of what would

become the iBookstore at Apple's launch of the iPad, then-Apple CEO Steve Jobs displayed
Edward Kennedy's bestselling autobiography True Compass at retail the price of $14.99. When

journalist Walter Mossberg of the Wall Street Journal asked how Apple would compete with

Amazon's $9.99 pricing, Steve Jobs responded, "the prices will be the same." Mr. Jobs could
make this statement because Apple had entered into an agreement with the Conspiring Publishers

that would use the Agency Model to fix marketwide e-book prices at this higher level. As stated
in Mr. Jobs' biography:
So we told the publishers, "We'll go to the 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."
86.

Each of the contracts signed between Apple and the Conspiring Publishers

contained an Exhibit A, which is focused on customer pricing. Exhibit A provided an agreed-

upon breakdown of what prices should be offered to U.S. purchasers for all of the Conspiring
Publishers' frontlist titles.
87.

The Exhibit A in each of the Conspiring Publishers' agreements with Apple,

contained some form of the following chart, which provided target prices for all frontlist e-books

published by the Conspiring Publishers across hardcover list pricing tiers.

.

S

88.

Exhibit A in each of the Conspiring Publishers' contracts contains a definition of

NYT-Bestselling titles. For example, as set forth in Exhibit A to the Penguin agreement,

This definition is, for
all intents and purposes, identical in the Exhibit A of each of Conspiring Publishers' agreements

with Apple.
89.

As to NYT-Bestselling titles, in Exhibit A, each of the Conspiring Publishers

agreed that,

90.

Each of the Conspiring Publishers also agreed, in Exhibit A, to fix e-book prices

for all frontlist trade or mass market paperback titles. Specifically, each of the Conspiring

Publishers agreed to

25

.
91.

.

On information and belief, although the written agreements between the

Conspiring Publishers and Apple spoke of the pricing at various points in Exhibit A as a
maximum price, it was understood by all of the Conspiring Publishers and Apple that the prices
listed were actually agreed upon set prices; and the Conspiring Publishers rarely, if ever, deviated
from the prices set in Exhibit A.
92.

To provide incentives for the Conspiring Publishers to convert Amazon and other

Outlets to the Agency Model, Apple's contracts with the Conspiring Publishers included a retail
price most favored nations clause (the "Apple MFN clause") covering hardcover new releases.
The Apple MFN clauses state that, for hardcover new releases, the Conspiring Publisher lower its

price at the iBookstore to match the lowest price being used at any competing e-bookstore,
whether or not the competing e-bookstore is distributing the title under the Agency Model or
Wholesale-Retail Model.
93.

As a result of the Apple MFN clause, if a Conspiring Publisher failed to

implement the Agency Model scheme and raise prices across all e-bookstores, it would diminish
the revenue on its titles with no effect on retail prices. For example, if Barnes & Noble chose to

offer the new Tom Clancy novel Search and Destroy to Nook owners at 10% off Penguin's
Agency price of $12.99 ($11.69), Penguin would have to offer the $11.69 price to consumers at
the iBookstore. At Barnes & Noble, Penguin would earn $9.09 and Barnes & Noble would earn

$2.60 on the sale of the novel. In contrast, at the iBookstore, Penguin would earn $8.18 (70% of
$11.69) and Apple would earn $3.51 (30% of $11.69). If Outlets charged even lower retail prices
for e-book titles, the math would become untenable for the Publisher. Each Publisher needed to

.

.

control retail prices across all Outlets to ensure that retail price competition did not make the
Agency Model unprofitable.
94.

Between January 27, 2010 and April 1, 2010, the Conspiring Publishers converted

the largest Outlets, including Amazon, to the Agency Model. Starting in April 2010 and
pursuant to their illegal agreement, the Conspiring Publishers generally raised retail prices of

NYT-Bestselling e-books from $9.99 to the $12.99 - $14.99 level. Contemporaneously, the
Conspiring Publishers also raised retail e-book prices on frontlist books to higher price points.
The Conspiring Publishers also on average substantially raised prices across their backlists.
95.

Penguin could not convert Amazon to the Agency Model until June 2010 because

its existing agreement with Amazon ran longer than those of the other Conspiring Publishers. In

the interim, Penguin withheld from Amazon all newly released e-books so that it could charge

the collusively agreed to higher prices at other Outlets.
96.

The higher retail prices benefitted Apple because it would earn higher revenues

from its commissions on each sale. Insulated from e-book price competition with other Outlets,
Apple could earn gross margins up to several times higher than in the Wholesale-Retail Model.
The Publishers achieved their long-running collective goal: higher retail prices for e-books.

E.

The Conspiring Parties Police and Enforce Their Agreement
97.

Over the next four months, the conspiring parties took steps to ensure that the

anticompetitive agreement was implemented, providing necessary support to one of the

conspirators, Macmillan, in its negotiations with Amazon, and forcing the only non-conspiring
Big Six publisher, Random House, to switch to the Agency Model.
98.

Macmillan was the first Conspiring Publisher to enter into renegotiations of its e27

I

.

books contract with Amazon. The Conspiring Publishers and Apple understood that forcing
Amazon, by far the largest Outlet for e-books, to accept the Agency Model would be central to

ensuring that their illegal scheme was successful. For this reason, the Conspiring Publishers thus
provided material support and encouragement to Macmillan throughout its ultimately successful

negotiations with Amazon.
99.

Macmillan presented Amazon with a choice: either adopt the Agency Model or

lose the ability to sell Macmillan new e-book releases for the first seven months after their

release. Amazon rejected Macmillan's proposal. In an attempt to push Macmillan off this

position, Amazon effectively stopped selling Macmillan's print books and e-books. The other
Conspiring Publishers jumped in to assist Macmillan.
100.

An executive of the parent of one of the Conspiring Publishers stated in an email
The executive continued, Macmillan

that Macmillan CEO

101.

The same executive also assured Macmillan CEO John Sargent of his company's

support. Specifically, in a January 31, 2010 email, he told Mr. Sargent that

102.

The January 31, 2010 email is merely one example of the supporting

correspondence that Mr. Sargent received from the Conspiring Publishers during Macmillan's

negotiations with Amazon. On February 1, 2010, John Makinson, the Chairman of Penguin's
parent the Penguin Group, wrote to Macmillan CEO John Sargent

28

.
103.

.

Simon & Schuster's Vice President of Marketing & Digital Products similarly

recognized, in a February 1, 2010 email to other Simon & Schuster executives, that Macmillan,
in its negotiations with Amazon, was

104.

In addition to support from the other Conspiring Publishers, Macmillan also

received support from Barnes & Noble. In fact, the CEO of Barnes & Noble told Mr. Sargent
In an attempt to assist Macmillan

that

during the negotiation process, Barnes & Noble moved its titles to the top of its merchandizing

pods and search results on the Nook.
105.

Macmillan understood that, while it was the first of the Conspiring Publishers to

begin negotiations with Amazon over the Agency Model, ultimately Amazon would be
negotiating with all five of the Conspiring Publishers. In fact, Amazon soon learned that all of

the Conspiring Publishers had agreed to the Agency Model, including taking control of both ebook retail pricing and the direct selling of e-books to consumers. These five publishers
cumulatively accounted for approximately half of Amazon's e-book business. Faced with the
possibility of losing so much e-book business, Amazon was forced to give in to Macmillan's
demands. Two days after it stopped selling Macmillan titles, Amazon publicly announced that it

had been forced to accept the Agency Model, and thereafter resumed selling Macmillan's e-book
and print book titles.
106.

The Defendants also worked together to force the largest of the Big Six

publishers, Random House, to switch to the Agency Model.
107.

Random House is the largest book publisher in the United States. In 2009, the
29

S

S

books Random House published constituted over 17% of all books published in the United
States, making it significantly larger than any of the other Big Six.
108.

Random House had not agreed to move to the Agency Model in January 2010.

The Conspiring Publishers understood that, if Random House was also forced to use the Agency

Model, the Agency Model would be cemented in place as the e-book standard. Moreover, the
Conspiring Publishers were extremely concerned that Random House would benefit by gaining
sales due to its lower e-book prices.
109.

Penguin put pressure on Barnes & Noble to force Random House to switch to the

Agency Model. Barnes & Noble is the largest book retailer in the United States. In the United
States, it currently owns and operates over 700 retail bookstores, and manages over 600 college

and university bookstores. It also sells the Nook e-book reader, which is, after the Kindle, the

second most popular e-book reader in the United States. Stephen Riggio is currently the Vice
Chairman of Barnes & Noble. From January 2002 through March 2010, he was Chief Executive

Officer of Barnes & Noble.
110.

On March 4, 2010, Penguin CEO David Shanks sent Stephen Riggio an email.

Shanks stated in his email that

(emphasis added) Mr. Shanks' email
continued

On information and belief, what Mr. Shanks was suggesting

was that Barnes & Noble stop any promotion or advertising of Random House titles.
30

.

.
111.

When Barnes & Noble continued to promote Random House titles, Penguin CEO

Shanks went back to Barnes & Noble again. Following this contact, Barnes & Noble's

management decided not to feature Random House in any future advertising.
112.

Throughout 2010, Barnes & Noble continued to apply pressure to Random House

to switch to the Agency Model. In addition, on information and belief, other Conspiring
Publishers also continued to pressure Random House to move to the Agency Model. Ultimately,

Random House signed an agreement with Apple. Random House's contract contained the same
Exhibit A price terms and the same MFN clause as the contracts between Apple and the
Conspiring Publishers.
113.

As of the filing date for this action, as a result of their illegal agreement, the

Conspiring Publishers continue to restrict output of e-books by charging consumers artificially

high prices. As a result consumers have suffered from tens of millions of dollars in overcharges
nationwide and, at minimum, millions in each of the Plaintiff States.

V. RELEVANT MARKETS
114.

The relevant product market is the market for the sale of e-books. Hachette,

HarperCollins, Macmillan, Penguin, and Simon & Schuster are competitors in this product

market.
115.

The relevant geographic market is the United States. Hachette, HarperCollins,

Macmillan, Penguin, and Simon & Schuster are competitors in this geographic market.

31

.

.
VI. TRADE & COMMERCE

116.

The activities of the Defendants, including the production, sale and distribution of

e-books, were in the regular, continuous and substantial flow of interstate trade and commerce
and have had and continue to have a substantial effect upon interstate commerce. The

Defendants' activities also had and continue to have a substantial effect upon the trade and
commerce within each of the Plaintiff States.

VII. MARKET EFFECTS
117.

The acts and practices of Defendants have had the purpose or effect, or the

tendency or capacity, of restraining competition unreasonably and injuring competition by

preventing the competitive pricing of e-books, and have directly resulted in an increase in retail

e-book prices across both the Defendants' frontlist and backlist titles.
118.

By preventing the competitive pricing of e-books, Defendants have deprived the

Plaintiff States and their consumers of the benefits of the competition that the federal and state
antitrust laws, consumer protection laws and/or unfair competition statutes and related state laws
are designed to promote, preserve, and protect.
119.

As a direct and proximate result of the unlawful conduct alleged above, the

general economies of the Plaintiff States have sustained injury and the Plaintiff States are

threatened with further injury to their general economies unless Defendants are enjoined from
continuing their unlawful conduct.

32

.

.

-

COUNT I (AGAINST MACMILLAN, PENGUIN AND SIMON & SCHUSTER)
HORIZONTAL CONSPIRACY TO RAISE E-BOOK RETAIL PRICES IN VIOLATION
OF SECTION I OF THE SHERMAN ACT
120.

Plaintiff States repeat and reallege every preceding allegation as if fully set forth

121.

By no later than the end of summer 2009, Macmillan, Penguin, Simon &

herein.

Schuster, and the other two Conspiring Publishers entered into an agreement to work together to

raise the NYT-Bestseller c-book retail prices from the $9.99 price point.
122.

This Agreement among and between horizontal competitors to raise c-book prices

constitutes a per se violation of Section
123.

1

of the Sherman Act.

In the alternative, the agreement between and among Macmillan, Penguin, Simon

& Schuster, and the other two Conspiring Publishers caused anticompetitive effects that

substantially outweigh any procompetitive justifications, if any exist. For this reason, under a

rule of reason analysis, the Agreement is a violation of Section

1

of the Sherman Act.

COUNT II (AGAINST MACMILLAN AND SIMON & SCHUSTER)
HORIZONTAL CONSPIRACY TO RAISE E-BOOK RETAIL PRICES USING
WINDOWING IN VIOLATION OF SECTION 1 OF THE SHERMAN ACT
124.

Plaintiff States repeat and reallege every preceding allegation as if fully set forth

125.

In December 2009, Macmillan, Simon & Schuster, and two other Conspiring

herein.

Publishers entered into an agreement to Window their frontlist e-books. The goal of this
agreement was to restrict frontlist e-book output in an attempt to cause retail Outlets to raise

frontlist e-book prices. For this reason, the agreement among and between four horizontal

33

S

.

competitors to raise e-book prices constitutes a per se violation of Section 1 of the Sherman Act.
126.

In the alternative, the agreement to Window between and among Macmillan,

Simon & Schuster, and two other Conspiring Publishers caused anticompetitive effects that

substantially outweigh any procompetitive justifications, if any exist. For this reason, under a
rule of reason analysis, the Agreement is a violation of Section

1

of the Sherman Act.

COUNT III (AGAINST MACMILLAN, PENGUIN, SIMON & SCHUSTER
AND APPLE) -- HORIZONTAL CONSPIRACY
TO RAISE E-BOOK RETAIL PRICES USING THE AGENCY
MODEL IN VIOLATION OF THE SHERMAN ACT
127.

Plaintiff States repeat and reallege every preceding allegation as if fully set forth

128.

By no later than the end of January 2010, Macmillan, Penguin, Simon & Schuster,

herein.

and the other two Conspiring Publishers entered into a horizontal agreement, facilitated and also

entered into by Apple, to use the Agency Model as a mechanism to raise the retail prices for
frontlist e-books. This agreement to raise c-book prices among and between horizontal
competitors, facilitated and also entered into by Apple, constitutes a per se violation of Section

1

of the Sherman Act.
129.

In the alternative, the purpose and effect of the agreement between and among

Macmillan, Penguin, Simon & Schuster, the other two Conspiring Publishers, and Apple to use
the Agency Model to raise c-book prices was to restrain competition between and among the

Publishers in the market for direct c-book retail sales to consumers. The Agreement has caused
anticompetitive effects that substantially outweigh procompetitive justifications, if any exist. For

34

.

S

this reason, under a rule of reason analysis, the Agreement is a violation of Section

1

of the

Sherman Act.

COUNT IV -- SUPPLEMENTAL STATE LAW CLAIMS
130.

Plaintiff State of Alaska repeats and realleges every preceding allegation.

131.

The aforementioned practices by Defendants were in violation of Alaska's

and Alaska's Unfair Trade Practices and Consumer

Restraint of Trade Act, AS 45.50.562

et seq.

Protection Act, AS 45.50.471

and the common law of Alaska.

et seq.,

132.

Plaintiff State of Arizona repeats and realleges every preceding allegation.

133.

The aforementioned practices by Defendants were in violation of the Arizona

State Uniform Antitrust Act, § 44-140 1

et seq.

134.

Plaintiff State of Colorado repeats and realleges every preceding allegation.

135.

The aforementioned practices by Defendants violate, and Plaintiff State of

Colorado is entitled to relief under, the Colorado Antitrust Act of 1992,

§

6-4-101, et seq., Cob.

Rev. Stat., and the common law of Colorado.
136.

Plaintiff State of Connecticut repeats and realleges every preceding allegation.

137.

Defendants' actions as alleged herein violate Conn. Gen. Stat.

§

35-26, 35-28 and

35-29 in that Defendants entered into contracts, combinations or conspiracies for the purpose of,
or having the effect of, fixing, controlling and maintaining prices, rates, quotations or fees for e-

books sold in the State of Connecticut.
138.

Defendants' actions as alleged herein violate Conn. Gen. Stat.

§

35-26, 35-28 and

35-29 in that they have the purpose and/or effect of substantially lessening competition and

35

.

S

unreasonably restraining trade and commerce within the State of Connecticut and elsewhere.
139.

Defendants' actions as alleged herein have damaged, directly and indirectly, the

prosperity, welfare, and general economy of the State of Connecticut and the economic wellbeing of a substantial portion of the People of the State of Connecticut and its citizens and

businesses at large. George Jepsen, Attorney General of the State of Connecticut, seeks recovery

of such damages as parens patriae on behalf of the those persons in the State of Connecticut
harmed by Defendants' conduct, pursuant to Conn. Gen. Stat.
140.

§

35-32(c)(1).

Defendants' acts and practices as alleged herein constitute unfair methods of

competition, all in violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat

§

42-

liOb.
141.

Plaintiff State of Illinois repeats and realleges every preceding allegation.

142.

The Defendants violated section 3 of the Illinois Antitrust Act, 740 ILCS 10/3, by

agreeing to fix the prices of e-books and to restrict their output for the purpose and with the

effect of raising e-book prices.
143.

Plaintiff State of Iowa repeats and realleges every preceding allegation.

144.

The aforementioned practices by Defendants were in violation of Iowa

Competition Law, Iowa Code ch.553.
145.

Plaintiff State of Maryland repeats and realleges every preceding allegation.

146.

The aforementioned practices by Defendants were in violation of the Maryland

Antitrust Act, Md. Code Ann. Com. Law § 11-201 et seq.
147.

Plaintiff State of Missouri repeats and realleges every preceding allegation.

148.

The aforementioned practices Defendants were in violation of Missouri's antitrust
36

.

S
law, Missouri Rev. Stat.

§

416.031

et seq.

and, further, were unfair and deceptive practices in

violation of Missouri's Merchandising Practices Act, Mo. Rev. Stat.

§

407.010

et seq.,

as

further interpreted by 15 CSR 60-8.010 et seq. and 15 CSR 60-9.01, etseq.
149.

Plaintiff State of Ohio repeats and realleges every preceding allegation.

150.

The aforementioned practices by Defendants were in violation of Ohio's antitrust

law, the Valentine Act, Ohio Rev. Code
151.

§§

1331.01 et seq, and the common law of Ohio.

Plaintiff Commonwealth of Pennsylvania repeats and realleges every preceding

allegation.
152.

The aforementioned practices by Defendants were in violation of Pennsylvania

common law doctrines against unreasonable restraint of trade.
153.

Plaintiff Commonwealth of Puerto Rico repeats and realleges every preceding

allegation.
154.

The aforementioned practices by Defendants were in violation of Puerto Rico Law

No. 77 of June 25, 1964, also known as "Puerto Rico's Antitrust and Restrictions of Commerce
Law", 10 P.R. Laws Ann.

§

257 et seq., and 32 P.R. Laws Ann.

§

3341.

155.

Plaintiff State of South Dakota repeats and realleges every preceding allegation.

156.

The aforementioned practices by Defendants were in violation of South Dakota's

antitrust law, South Dakota Codified Laws 37-1-3.1 et seq.
157.

Plaintiff State of Tennessee repeats and realleges every preceding allegation.

158.

The aforementioned practices by Defendants were in violation of Tennessee's

antitrust law, the Tennessee Trade Practices Act, Tenn. Code Ann.

Tennessee Consumer Protection Act, Tenn. Code Ann.
37

§§

§

47-25-101 et seq, the

47-18-101 et seq, and the common law

S

S
of Tennessee.
159.

Plaintiff State of Texas repeats and realleges every preceding allegation.

160.

The aforementioned practices by Defendants were in violation of Texas Business

and Commerce Code §15.01 et seq.
161.

Plaintiff State of Vermont repeats and realleges every preceding allegation.

162.

The aforementioned practices by Defendants were in violation of the State of

Vermont's Consumer Fraud Act, 9 V.S.A.
163.

§

2451

etseq.

Plaintiff State of West Virginia repeats and realleges every preceding allegation.

The aforementioned practices by Defendants were in violation of the West Virginia Antitrust
Act, W.Va. Code

§

47-18-1 et seq. West Virginia seeks injunctive relief, treble damages, civil

penalties and its costs and attorneys' fees under federal and state law, including, the West

Virginia Antitrust Act, W.Va. Code

§

47-1 8-8 and -9.

PRAYER FOR RELIEF
Accordingly, the Plaintiff States request that the Court:
Adjudge and decree that the Defendants have committed violations of Section
the Sherman Act, 15 U.S.C. § 1;

1

of

2.

Adjudge and decree that the Defendants have committed violations of each of the
state laws enumerated in Count IV;

3.

Enjoin and restrain, pursuant to federal and state law, the Defendants, their
affiliates, assignees, subsidiaries, successors and transferees, and their officers,
directors, partners, agents, and employees, and all persons acting or claiming to
act on their behalf or in concert with them, from continuing to engage in any
anticompetitive conduct (including the conspiracies described herein) and from
adopting in the future any practice, plan program or device having a similar
purpose or effect to the anticompetitive actions set forth above;

4.

Award treble damages for injury to natural persons under 4c of the Clayton Act
38

S

S
and applicable state laws;
5.

Order Defendants to pay a civil fine of up to $50 million pursuant to Alaska
Statute 45.50.578(b) (2);

6.

Order Defendants to pay civil penalties pursuant to
Uniform Antitrust Act;

7.

Order Defendants to pay civil penalties pursuant to the Colorado Antitrust Act of
1992, §6-4-112, Colo.Rev.Stat.;

8.

Order each Defendant to pay civil penalties pursuant to Conn. Gen. Stat.
for each and every violation of the Connecticut Antitrust Act;

9.

Order each Defendant to pay a civil penalty of $5,000 for each and every willful
violation of the Connecticut Unfair Trade Practices Act pursuant to Conn. Gen.
Stat. § 42-llOo;

10.

Order each Defendant to pay restitution pursuant to Conn. Gen. Stat.

11.

Order each Defendant to disgorge all revenues, profits, and gains achieved in
whole or in part through the unfair and/or deceptive acts and practices complained
of herein, pursuant to Conn. Gen. Stat. § 42-Il Om;

12.

Order Defendants to pay civil penalties pursuant to section 7(4) of the Illinois
Antitrust Act, 740 ILCS 10/7(4);

13.

Order Defendants to pay a civil penalty pursuant to Iowa Code §553.13;

14.

Order the Defendants to pay civil penalties pursuant to Md. Code Ann. Corn. Law
§1 1-209(a)(4);

15.

Order Defendants to pay civil penalties pursuant to Missouri Rev. Stat. §
407.100.6 for each sale made in violation of Missouri's Merchandising Practices
Act;

16.

Order the Defendants to pay civil forfeitures pursuant to Ohio Revised Code
Section 1331.03;

17.

Order the Defendants to pay civil penalties and civil forfeitures pursuant to Puerto
Rico Sections 259 and 268 of Law No. 77;

18.

Order Defendants to pay civil penalties pursuant to South Dakota Codified Laws
37-1-14.2;

19.

Order Defendants to pay civil penalties pursuant to Tenn. Code Ann § 47-25-106;

§

44-1407 of the Arizona State

§

§

35-38

42-hOrn;

S

.

20.

Order Defendants to pay civil fines pursuant to Section 15.20(a) of the Texas
Business and Commerce Code;

21.

Order Defendants to pay civil penalties pursuant to Title 9 of the Vermont
Statutes, Section 2461;

22.

Order Defendants to pay civil penalties to the State of West Virginia pursuant to
Section 47-1 8-8 of the West Virginia Antitrust Act;

23.

Order other equitable relief as may be appropriate;

24.

Award the Plaintiff States the costs of this action, including reasonable attorneys'
fees and costs, as provided in Section 4c of the Clayton Act and applicable state
law; and

25.

Direct such other and further relief as the Court deems just and proper.

JURY DEMAND
The Plaintiff States demand a trial by jury, pursuant to Rule 3 8(b) of the Federal Rules of
Civil Procedure, on all issues triable as of right by jury.

S

.
Respectfully submitted,
GREG ABBOTT
Attorney General of Texas
DANIEL HODGE
First Assistant Attorney General
JOHN B. SCOTT
Deputy Attorney General for Civil Litigation

JOHN T. PRUD'HOMME
Chief, Consumer Protection Division
KIM VAN WINKLE
Section Chief, Antitrust Section
Consumer Protection Division

RL R. 0

( Texas BarNo.

24,072112

Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
Telephone: [phone]
Facsimile: 512-320-0975

gabriel.gerveytexasattorneygeneral.gov

Assistant Attorney General
Texas Bar No. 24031828
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
Telephone: [phone]
Facsimile: 512-320-0975

david.ashtontexasattorneygeneral.gov
ATTORNEYS FOR THE STATE OF TEXAS
41

S

.

Respectfully submitted,
STATE OF CONNECTICUT
GEORGE JEPSEN
ATTORJ'EEY GENERAL

Michael E. Cole
Chief, Antitrust Department
W. Joseph Niesen
Gary M. Becker

Assistant Attorneys General
55 Elm Street
Hartford, CT 06106
PH: 860-808-5040
FAX: [phone]
Michael. Colect.gov

Joseph.Nielsenct.gov
Gary.Beckerct.gov
ATTORNEYS FOR THE STATE OF CONNECTICUT

42

S

.

Respectfully submitted,
The STATE OF ALASKA

MICHAEL C. GERAGHTY
Attorney General
Clyde E. Sniffen, Jr.
Senior Assistant Attorney General
Alaska Bar # 8906036
Alaska Department of Law
1031

W.4thAve.#200

Anchorage, AK 99501
[phone]
[phone] (Telefax)
ATTORNEYS FOR THE STATE OF ALASKA

43

.

.
Respectfully submitted,
THOMAS C. HORNE
Attorney General of Arizona

NANCY M. BONNELL
Antitrust Unit Chief
Susan V. Myers
Assistant Attorney General
Office of the Arizona Attorney General
Consumer Protection and Advocacy Section
1275 West Washington
Phoenix, Arizona 85028
Tel: [phone]
Fax: [phone]
Nancy.bonne1lazag. gov
ATTORNEYS FOR THE STATE OF ARIZONA

S

.
Respectfully submitted,
JOHN W. SUTHERS
Attorney General of Colorado

Devin M. Laiho
Assistant Attorney General
Colorado Department of Law
1525 Sherman Street, Seventh Floor
Denver, Colorado 80203
Voice: 303.866.5079
Email: [e-mail]
ATTORNEYS FOR THE STATE OF COLORADO

S

S
Respectfully submitted,
LISA MADIGAN
Attorney General of Illinois

Chadwick 0. Brooker
Assistant Attorney General
Office of the Illinois Attorney General
Antitrust Bureau
100 W. Randolph Street
Chicago, Illinois 60601
Tel: [phone]
Fax: [phone]

cbrookeratg.state.i1.us
ATTORNEYS FOR THE STATE OF ILLINOIS

.

S

Respectfully submitted,
THOMAS J. MILLER
Attorney General
LAYNE M. LINDEBAK
IA Bar AT0004755
Assistant Attorney General
Special Litigation Division
Hoover Office Building-Second Floor
1305 East Walnut Street
Des Moines, IA 50319
Tel: [phone]
Fax: [phone]

Layne.Lindebakiowa.com
ATTORNEYS FOR THE STATE OF IOWA

47

S

S
Respectfully submitted,
DOUGLAS F. GANSLER
Attorney General of Maryland
ELLEN S. COOPER
Chief, Antitrust Division
JOHN R. TENNIS
Deputy Chief, Antitrust Division

Schonette Walker
Assistant Attorney General
Office of the Maryland Attorney General
Antitrust Division
19th
Floor
200 St. Paul Place,
Baltimore, Maryland 21202
Tel: [phone]
Fax: [phone]
ATTORNEYS FOR THE STATE OF MARYLAND

.

.

Respectfully submitted,
CHRIS KOSTER
Attorney General of Missouri

ANNE B. SCHNEIDER
Assistant Attorney General/Antitrust Counsel
Missouri Bar No. 35479
BRIANNA LENNON
Assistant Attorney General
Mo. Bar # 63964

Jefferson City, MO 65102
[phone]
[phone] (facsimile)
Anne. Scbneiderago .mo.gov
Brianna.Lennonago .mo.gov
ATTORNEYS FOR THE STATE OF Missoulu

49

.

S

Respectfully submitted,
R. MICHAEL DEWINE

Attorney General of Ohio
JENNIFER L. PRATT
Chief, Antitrust Section

Edward J. Olszewski
(Ohio S.Ct. No. 82655)
Assistant Attorney General
Office of the Ohio Attorney General, Antitrust
Section
150 E. Gay St. 23rd Floor
Columbus, OH 43215
Tel: [phone]
Fax: [phone]
ATTORNEYS FOR THE STATE OF OHrO

50

.

.

Respectfully submitted,
The Commonwealth of Pennsylvania

LINDA L. KELLY
Attorney General

James A. Donahue, III
Chief Deputy Attorney General
Attorney I.D. # 42624
PA Office of Attorney General
14th
Floor, Strawberry Square
Harrisburg, PA 17120
[phone]
[phone] (Telefax)
Jennifer J. Kirk
Deputy Attorney General
Attorney I.D. # 90544
PA Office of Attorney General
14th
Floor, Strawberry Square
Harrisburg, PA 17120
[phone]
[phone] (Telefax)
ATTORNEYS FOR THE COMMONWEALTH OF
PENNSYLVANIA

51

.

.

Respectfully submitted,
The Commonwealth of Puerto Rico

Guillermo Somoza-Colombani
Attorney General
José G. DIaz-Tejera
PR Bar No. 12561
Chief Deputy Attorney General
Office of Monopolistic Affairs
Department of Justice
Commonwealth of Puerto Rico
P. 0. Box 9020192
San Juan, P.R. 00902-0 192
Telephone: [phone] Ext. 2669
Facsimile: [phone]

jdiazjusticia.pr.gov
ATTORNEYS FOR THE COMMONWEALTH OF
PUERTO RICO

52

.

S

Respectfully submitted,
MARTY J. JACKLEY
Attorney General of South Dakota

Jeffrey P. Hallem
South Dakota Bar No. 1955
Assistant Attorney General
Office of the Attorney General
1302 E. Hwy. 14, Suite 1
Pierre, SD 57501-8501
Telephone: [phone]
Facsimile: [phone]
[e-mail]
ATTORNEYS FOR THE STATE OF SOUTH
DAKOTA

53

.

S

Respectfully submitted,
ROBERT E. COOPER, JR.
Attorney General & Reporter of Tennessee

VICTOR J. DOMEN, JR.
Senior Counsel
Office of the Tennessee Attorney General
425 Fifth Avenue North
Nashville, TN 37202
Telephone: [phone]
Facsimile: 615-532-6951

Vic.Domenag.tn.gov
ATTORNEYS FOR THE STATE OF TENNESSEE

54

S

S

Respectfully submitted,
STATE OF VERMONT
WILLIAM H. SORRELL
ATTORNEY GENERAL
Ryan Kriger
Assistant Attorney General
Public Protection Division
Vermont Attorney General's Office
109 State Street
Montpelier, VT 05609
Tel: [phone]
Fax: [phone]
ATTORNEYS FOR THE STATE OF VERMONT

55

S

.
Respectfully submitted,
DARRELL V. MCGRAW, JR.
Attorney General of West Virginia
JILL L. MILES
Deputy Attorney General

Consumer Protection and Antitrust Division
DOUGLAS L. DAVIS
West Virginia Bar No. 5502
Assistant Attorney General
Office of the West Virginia Attorney General
P.O. Box 1789
Charleston, West Virginia 25326
Telephone [phone]
Facsimile [phone]

doug.daviswvago.gov
ATTORNEYS FOR THE STATE OF WEST
VIRGINIA

56