Judge Dismisses E-Book DRM Antitrust Case

Last week a federal judge in New York dismissed a lawsuit that a group of independent booksellers brought earlier this year against Amazon.com and the (then) Big Six trade publishers.  The suit alleged that the publishers were conspiring with Amazon to use Amazon’s DRM to shut the indie booksellers out of the majority of the e-book market.  The three bookstores sought class action status on behalf of all indie booksellers.

In most cases, independent booksellers can’t sell e-books that can be read on Amazon’s Kindle e-readers; instead they have a program through the Independent Booksellers Association that enables consumers to buy e-books from the stores’ websites via the Kobo e-book platform, which has apps for all major devices (PCs, iOS, Android, etc.) as well as Kobo eReaders.

Let’s get the full disclosure out of the way: I worked with the plaintiffs in this case as an expert witness.  (Which is why I didn’t write about this case when it was brought several months ago.)  I did so because, like others, I read the complaint and found that it reflected various misconceptions about DRM and its place in the e-book market; I thought that perhaps I could help educate the booksellers.

The booksellers asked the court to enjoin (force) Amazon to drop its proprietary DRM, and to enjoin the Big Six to allow independent bookstores to sell their e-books using an interoperable DRM that would presumably work with Kindles as well as iOS and Android devices, PCs, Macs, BlackBerrys, etc.  (The term that the complaint used for the opposite of “interoperable DRM” was “inoperable DRM,” much to the amusement of some anti-DRM folks.)

There were two fundamental problems with the complaint.  One was that it presupposed the existence of an idealized interoperable DRM that would work with any “interoperable or open architecture device,” and that “Amazon could easily, and without significant cost or disruption, eliminate its device specific restrictive [] DRM and instead utilize an available interoperable system.”

There is no such thing, nor is one likely to come into being.  I worked with the International Digital Publishing Form (IDPF), the trade association for e-books, to design a “lightweight” content protection scheme that would be attractive to a large number of retailers through low cost of adoption, but that project is far from fruition, and in any case, no one associated with it is under any illusion that all retailers will adopt the scheme.  The only DRM that is guaranteed to work with all devices and all retailers forever is no DRM at all.

The closest thing there is to an “interoperable” DRM nowadays is Adobe Content Server (ACS) — which isn’t all that close.  Adobe had intended ACS to become an interoperable standard, much like PDF is.  Unlike Amazon’s Mobipocket DRM and Apple’s FairPlay DRM for iBooks, ACS can be licensed and used by makers of e-reader devices and apps.  Several e-book platforms do use it.  But the only retailer with significant market share in the United States that does so is Barnes & Noble, which has modified it and combined it with another DRM that it had acquired years ago.  Kobo has its own DRM and uses ACS only for interoperability with other environments.

More relevantly, I have heard it said that Amazon experimented with ACS before launching the Kindle with the Mobipocket DRM that it acquired back in 2005.  But in any case, ACS’s presence in the US e-book market is on the wane, and Adobe has stopped actively working on the product.

The second misconception in the booksellers’ complaint was the implication that the major publishers had an interest in limiting their opportunities to sell e-books through indie bookstores.  The reality is just the opposite: publishers, from the (now) Big Five on down, would like nothing more than to be able to sell e-books through every possible retailer onto every possible device.  The complaint alleges that publishers “confirmed, affirmed, and/or condoned AMAZON’s use of restrictive DRMs” and thereby conspired to restrain trade in the e-book market.

Publishers have been wary of Amazon’s dominant market position for years, but they have tolerated its proprietary technology ecosystem — at least in part because many of them understand that technology-based media markets always settle down to steady states involving two or three different platforms, protocols, formats, etc.  DRM helps vendors create walls around their ecosystems, but it is far from the only technology that does so.

As I’ve said before, the ideal of an “MP3 for e-books” is highly unlikely and is largely a mirage in any case.  Copyright owners have a constant struggle to create and preserve level playing fields for retailers in the digital age, one that the more savvy among them recognize that they can’t win as much as they would like.

Judge Jed Rakoff picked up on this second point in his opinion dismissing the case. He said, “… nothing about [the] fact [that publishers made agreements with Amazon requiring DRM] suggests that the Publishers also required Amazon to use device-restrictive DRM limiting the devices on which the Publishers’ e-books can be display, or to place restrictions on Kindle devices and apps such that they could only display e-books enabled with Amazon’s proprietary DRM. Indeed, unlike DRM requirements, which clearly serve the Publishers’ economic interests by preventing copyright violations, these latter types of restrictions run counter to the Publishers’ interests …” (emphasis in original).

Indie bookstores are great things; it’s a shame that Amazon’s Kindle ecosystem doesn’t play nicely with them. But at the end of the day — as Judge Rakoff also pointed out — Amazon competes with independent booksellers, and “no business has a duty to aid competitors,” even under antitrust law.

In fact, Amazon has repeatedly shown that it will “cooperate” with competitors only as a means of cutting into their markets. Its extension of the Kindle platform to public library e-lending last year is best seen as part of its attempt to invade libraries’ territory. More recently, Amazon has attempted to get indie booksellers interested in selling Kindle devices in their stores, a move that has elicited frosty reactions from the bookstores.

The rest of Judge Rakoff’s opinion dealt with the booksellers’ failure to meet legal criteria under antitrust law.  Independent booksellers might possibly have a case to bring against Amazon for boxing them out of the market as reading goes digital, but Book House of Stuyvesant Plaza et al v. Amazon.com et al wasn’t it.

2 comments

  1. Bill, lots’s of fun reading it. We all know Big Ones (it is Five or Six) barely tolerate Amazon and only because they have to. Demanding full interoperability is a valid demand but more of a wishful thinking type. Interestingly, there is little fundamental business model innovation happening in the publishing ecosystem and the legal action confirms this. I think Amazon would rather die rather than being (legally) forced into doing something they do not want to do. Market/innovation forces would have been much better weapon but these are nowhere to be seen on the horizon

  2. yeah…i have also heard the same……and agreed with Piotr

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