Why the lawsuit will fail

Even federal law may not beat the bookstore chains.

On March 18, the American Booksellers Association, which represents independent bookstores, filed suit in California against Borders and Barnes & Noble. The lawsuit—which includes Seattle’s Elliott Bay Book Company as a plaintiff—accuses the chains of violating a relatively arcane branch of antitrust law stemming from a 1936 federal law, the Robinson-Patman Act.

At issue is the chains’ ability to coerce staggeringly high discounts and outright payola from publishers simply by demanding them, while independent bookstores must make do with standard discounts, less generous return policies, and more onerous payment terms. As a result, chains routinely undercut independent competition by offering steep discounts to customers, eventually driving nearby independently owned competitors out of business. Over the last five years, Barnes & Noble has grown from 135 stores nationwide to 469, Borders has grown from 31 to 189, and the market share of independent stores has declined by 40 percent.

See end of article for related links.

The ABA lawsuit comes on the heels of a suit against six leading American publishers, in which the ABA won a $27 million settlement and a consent decree in which the publishing industry agreed to treat independents and chain stores as equals. But as the new filing makes clear, the consent decree has proven largely meaningless. Nearly all of the practices that led to the previous suit are also cited in the new lawsuit.

Originally written to protect small grocers from chain grocers, Robinson-Patman would seem an ideal hammer to bring down on the heads of Borders and Barnes & Noble. But in the annals of antitrust, the law has proven nearly unenforceable, and the federal government by and large has tried to avoid bringing Robinson-Patman actions against companies. According to Alan Sherbrooke, a partner at Seattle’s Garvey, Schubert & Barer who has practiced antitrust law for 20 years, Robinson-Patman “is a statute that a lot of antitrust gurus and people who make enforcement policy think was a bad idea. Antitrust should promote efficiency, and there’s nothing inefficient about price discrimination. American Bar Association theoreticians generally say that Robinson-Patman is a good idea but not good policy. Cases tend to be difficult, and violations hard to prove.”

The complaint filed by the booksellers association lists a roster of practices that sets the reader’s teeth to grinding. Were the case to be heard in a moral rather than legal arena, the independents would win in summary judgment. The law, though, is more complicated, and Sherbrooke believes that Barnes & Noble and Borders have “probably been careful enough to figure out how to do the things listed in the complaint without violating the law. Robinson-Patman seems simple and straightforward, but it has so many exceptions that it’s pretty easy to make price-discriminatory arrangements work.”

Whether the indies prevail on any of their arguments will not be known for years. Next up in the lawsuit is several months’ worth of preliminary motions over procedure, jurisdiction, and other matters of legal jousting.

Related Links:

The American Booksellers Association


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