By Rebecca Meadows

 

While most of us are keenly aware of how ‘Big Tech’ has entered so many sectors of our daily lives, we should also be paying attention to the legal troubles that these companies are bumping into again and again. Particularly in the area of antitrust enforcement, there have been many allegations against companies such as Amazon, Facebook, Google, and Apple that have recently found them testifying before Congress or being subject to enforcement actions by the Federal Trade Commission or Department of Justice.[1] Part of the problem here is that, as these companies continue to expand into new markets, some say that they present novel questions that require novel solutions – which our current legal framework is not capable of addressing in a satisfactory manner.[2] Of course, on the other hand, it can be argued that these tech giants are no different than the ‘giants’ our laws were built to handle in the 19th and 20th centuries, such as the Standard Oil Company which prompted the Clayton Act.[3]

 

For Amazon, their status as not only a retailer, but also “a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power” certainly opens the door for fascinating antitrust questions.[4] Although these questions of the rapidly expanding breadth of all big tech companies are hot topics in the public eye, it also cannot be ignored when big companies act anticompetitively in the markets that they originated in.

 

Amazon began doing business in 1995 as an online book seller, with goals of becoming the largest bookstore in the world.[5] It stuck to strictly selling books for the first three years of business, before beginning to branch out into online sales of other consumer goods.[6]

 

On March 25, 2021, the Illinois and online bookstore Bookends & Beginnings LLC filed a class action complaint alleging that Amazon and the five largest book publishers restrain competition in the sale of print books through highly restrictive clauses in their distribution agreements.[7]  The complaint includes as members of the class all retail and online booksellers who purchased books at wholesale directly from these five publishers on or after March 25, 2017.[8]

 

Amazon accounts for over 50% of all books purchased at retail in the U.S., and over 90% of all books sold online.[9] The five largest publishing companies in the U.S. – Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster – collectively make up 80% of books sold in the U.S.[10] Amazon and these publishers use ‘most favored nation’ clauses in their distribution agreements, which entitle the buyer to the lowest price or best deal that the supplier offers to any other buyer – effectively ensuring that booksellers cannot differentiate from, or compete with, each other on the basis of price or product availability.[11] In other words, retail bookstores will not be able to sell books from 80% of the country’s publishers at a better price than what can be found on Amazon – anything that those publishers sell in a retail bookstore can also be found on Amazon for the same price. Because Amazon has such a strong market share already, these contract provisions restrict the ability of Plaintiff, or any other booksellers, from competing with Amazon for business by offering better prices or a better product selection. In effect, these contractual provisions between the country’s largest publishers and Amazon allow the price-fixing for wholesale books, create a barrier to market entry for any new competitors, and hinder the expansion of existing book retail competitors of Amazon.[12] Due to the artificial lack of competition, the wholesale prices of books are being driven above a price that would be determined by supply and demand.[13] The complaint alleges that this price-fixing is in violation of Section 2 of the Sherman Act, which forbids monopolies from acting anticompetitively.[14]

 

This complaint raises new questions about the behavior of today’s largest companies. This case does not necessarily involve the size of Amazon as an enormous, integrated, ‘big tech’ company – on the surface it seems to implicate Amazon solely as a large bookstore, all that it once aspired to be. However, it seems nearly impossible to actually view Amazon’s bookselling capacity in isolation, now that we know just how far its influence truly spans.

 

[1] See generally Bill Baer, The Tech Antitrust Hearings Are Over: What’s Next for Enforcement?, Brookings (Aug. 11, 2020), https://brookings.edu/blog/techtank/2020/08/11/the-tech-antitrust-hearings-are-over-whats-next-for-enforcement.

[2] See Steven Pearlstein, Beating Up on Big Tech is Fun and Easy. Restraining it Will Require Rewriting the Law, The Washington Post (July 30, 2020), https://www.washingtonpost.com/business/2020/07/30/antitrust-amazon-apple-facebook-google.

[3] See generally Aishani Aatresh, What the “Big Tech” Trustbusting Conversation Misses, Harv. Pol. Rev. (Oct. 28, 2020), https://harvardpolitics.com/big-tech-trustbusting; see also Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710, 723 (2017).

[4] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710, 713 (2017).

[5] See Amazon Opens for Business, History, https://www.history.com/this-day-in-history/amazon-opens-for-business.

[6] See id.

[7] See Katherin Khashimova Long, Amazon Faces New Lawsuit Alleging it Fixed Book Prices, The Seattle Times (Mar. 24, 2021), https://www.seattletimes.com/business/amazon/amazon-faces-new-lawsuit-alleging-it-fixed-book-prices.

[8] See id.

[9] See Complaint at 2, Bookends & Beginnings LLC v. Amazon.com, Inc., No. 1:21-cv-02584 (S.D.N.Y. 2021).

[10] See id. at 1.

[11] See id. at 2–3.

[12] See id. at 5.

[13] See id. at 7.

[14] See id. at 6.

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