Legal Stuff

Apple’s mistake was hooking up with the book-publishing cartel

1 July 2015

From Fortune:

An appeal court’s decision finding Apple guilty of collusion with publishers reinforces just how cozy a cartel the industry was.

Apple may be trying to keep the spotlight on its latest foray into the streaming-music business, but it is also still trying to clean up the mess caused by its ham-handed entry into an earlier market: book publishing. A federal court on Tuesday rejected the company’s appeal of an earlier ruling that found it guilty of orchestrating a conspiracy with the major book publishers, in what the court said was a successful attempt to artificially inflate the price of e-books.

As Fortune‘s Jeff Roberts reports, the court found Apple engaged in collusion with what amounted to an oligopoly—namely, Harper Collins, Penguin, Simon & Schuster, Hachette and Macmillan—and that its actions were a clear breach of antitrust law. Apple argued that the deal it cut with the publishers was necessary to blunt Amazon’s dominance in the e-book market, but the appeals court didn’t buy that argument. Judge Debra Ann Livingston wrote:

“Competition is not served by permitting a market entrant to eliminate price competition as a condition of entry, and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers.”

One reason the court failed to buy this argument is that the major publishers clearly had zero interest in actually competing on price—in fact, they wanted to do exactly the opposite. Their interest in doing a deal with Apple stemmed from a desire to maintain the existing favorable price structure for books, which allowed them to milk the market for high-priced hardcover versions of new novels before eventually releasing cheaper versions. Amazon’s low-priced e-books were a threat.

. . . .

The fact that the book industry was a cozy cartel is reinforced by the court’s description of how the publishers behaved even before Apple came along: They “operated in a close‐knit industry and had no qualms communicating about the need to act together,” the ruling says, quoting from the lower-court decision: “On a fairly regular basis… the CEOs of the [Big Six] held dinners in the private dining rooms of New York restaurants, without counsel or assistants present, in order to discuss the common challenges they faced.”

Since the publishers didn’t compete with each other on the basis of price, the appeals court decision says, “publishers felt no hesitation in freely discussing Amazon’s prices with each other and their joint strategies for raising those prices.”

. . . .

After strong-arming Amazon into accepting the new “agency pricing” model—in which the publishers got to set the price for their books, rather than allowing the retailer to do so—the book industry got exactly what it wanted. According to research by the Justice Department, the price of newly released books rose by an average of 24% and bestsellers climbed by 40%.

It says a lot about the book-publishing business that doing this actually caused book sales to drop fairly dramatically across the board: research done by another expert using data from Random House showed that publishers who switched to the agency model sold close to 15% fewer books than they would have otherwise. So the industry was effectively willing to trade a short-term decline in sales for the increase in power that they got over pricing as a result of the deal with Apple.

Link to the rest at Fortune and thanks to Michael for the tip.

Apple Loses Federal Appeal in E-Books Case

30 June 2015

From The Wall Street Journal:

A federal appeals court on Tuesday upheld a 2013 decision finding Apple Inc. liable for conspiring with publishers to raise the price of e-books.

The 2-1 ruling Tuesday by the Second U.S. Circuit Court of Appeals in Manhattan follows three years of litigation, millions of dollars in legal fees and a bold decision by Apple tochallenge the U.S. Department of Justice to a trial, even after all the publishers with which it was accused of colluding had settled their cases.

The iPhone maker is expected to pay $450 million, most of it to e-book consumers, as part of a November agreement with private plaintiffs and 33 states that joined the Justice Department’s 2012 lawsuit accusing Apple of violating civil antitrust law. The deal hinged on the outcome of the appeal. The penalty amounts to less than 3% of the Cupertino, Calif.-based company’s profit in the quarter that ended in December.

“We conclude that the district court correctly decided that Apple orchestrated a conspiracy among the publishers to raise e-book prices,” wrote Second Circuit JudgeDebra Ann Livingston. The conspiracy “unreasonably restrained trade” in violation of the Sherman Act, the federal antitrust law, the judge wrote.

. . . .

At the time, publishers were dissatisfied with Amazon’s aggressive discounts. Apple’s agreements ceded the power to set prices to the publishers, in what’s known as an agency model. But there was an exception: If another retailer were selling an e-book at a lower price, the publisher would have to match that price in Apple’s bookstore.

With a new outlet for their e-books, the publishers had the leverage they needed to reclaim some pricing power from Amazon, Justice Department lawyers said. Change was inevitable: The publishers couldn’t afford to sell their e-books in Apple’s store at Amazon’s discounted prices of $9.99 for most best sellers.

Prices on many e-books increased immediately. Lawyers for Apple said the company unwittingly facilitated the push against Amazon by the publishers.

But the Second Circuit majority said the evidence showed the technology company knew what it was doing.

“Apple understood that its proposed contracts were attractive to the publisher defendants only if they collectively shifted their relationships with Amazon to an agency model — which Apple knew would result in consumers facing higher e-book prices,” Judge Livingston wrote in a decision joined by Judge Raymond J. Lohier Jr.

Link to the rest at The Wall Street Journal (Link may expire) and thanks to Nirmala for the tip.

When PG first read the trial court’s opinion, he was impressed by two things:

  1. The good job the trial judge did in analyzing the evidence in the case and crafting an excellent opinion that was unlikely to be overturned on appeal.
  2. How amazingly inept the the price fixing conspirators in Big Publishing and Apple were. The evidence showed them to be a bunch of bumblers and their testimony during trial did nothing to ameliorate this impression.

In a nutshell, Apple can now ask for a rehearing in front of the three judges who just ruled against them or an en banc hearing before all the judges in the Second Circuit or try to persuade the Supreme Court to accept an appeal.

PG doubts any of these paths would change the result in this case.

He will warn all and sundry to expect sporadic outbreaks of Amazon Derangement Syndrome.

Kimble v. Marvel: Justice Kagan’s top Spider-Man jokes in a big patent case

30 June 2015

From Vox:

The Supreme Court settled a long-running patent case titled Kimble V. Marvel Entertainment. It was basically about patent holders and licensing fees, which isn’t that fun, but Justice Elena Kagan wrote the court’s opinion on the case, which was fun — mainly because she filled it with Spider-Man jokes.

Kagan, a self-avowed “avid comic book fan” managed to slip in lyrics from the 1970s Spider-Man cartoon theme song in the court’s written opinion, as well as the classic line “with great power comes great responsibility” — referring specifically to the court’s power to overturn legal precedent, and their responsibility not to do so without a compelling reason. In this case, Stephen Kimble — who created the mechanism that Marvel used to create the super-popular Web Shooter toys, which were gloves that fired silly string — wasn’t able to convince the court that he was owed royalties by Marvel after his patent expired.

. . . .

Kimble v. Marvel Entertainment poses a serious legal and policy question about the ability of patent holders to extract license fees after the expiration of the underlying patent that led to the fees. But it also has to do with Spider-Man merchandise, so Justice Kagan, who wrote the opinion, apparently couldn’t restrain herself from cracking a series of comic book jokes:

  • “The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids want to imitate Spider-Man (by doing whatever a spider can).”
  • “Patents endow their holders with certain superpowers, but only for a limited time.”
  • “To the contrary, the decision’s close relation to a whole web of precedents means that reversing it could threaten others.”
  • “What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly. Cf. S. Lee and S. Ditko, Amazing Fantasy No. 15: “SpiderMan,” p. 13 (1962) (“[I]n this world, with great power there must also come — great responsibility”).”

Link to the rest at Vox and thanks to Dan for the tip.

A Gronking To Remember Lawsuit Gets Strange While Amazon Argues Liability Would Chill Speech And Art

29 June 2015

From Techdirt:

Somewhat surprisingly to me, the tale of the now infamous eBook, “A Gronking To Remember” continues to develop. Yes, this whole thing started when a book purportedly written by a woman named Lacey Noonan, which details one housewife’s sexual liberation at the sight of Patriots tight-end (heh) spiking a football, was taken down off of Amazon. The speculation at the time was that the cover of the book was the cause of the takedown, with the NFL being the likely complainer, as the cover features Gronkowski in full uniform.

. . . .

We learned later that the NFL wasn’t actually the reason for the takedown. Instead, it was the photo of that couple embracing had apparently been appropriated from the wider interwebz without permission by the author or whoever designed the cover. That couple, choosing to remain anonymous, was suing not only the author but Amazon and Apple as well for selling the work on their respective platforms. So, what have we learned since?

Well, to start with, Lacey Noonan is a dude. Greg McKenna to be specific. Which, whatever, there’s no reason a guy can’t write sex-fics about a housewife wanting to nail a football player, but it was a surprise. We’ve also learned that the New England Patriots did indeed complain to Amazon about the appearance of the team’s uniform on the cover, but it turns out Noonan/McKenna removed The Gronk from the cover and republished the book again, with the image of the anonymous couple still in place, we assume. We’ve also learned that Amazon has an automated system that checks the works authors seek to publish for pure plagiarism or insanely offensive material.

Link to the rest at Techdirt

Gravity Lawsuit Update

20 June 2015

From author Tess Gerritsen:

For a second time, the court has concluded I have not stated a viable claim for breach of contract against Warner Bros. or New Line. My 1999 contract with New Line Productions guaranteed me “based upon” credit, a production bonus, and back-end profits if a motion picture is ever made based on my novel Gravity, which is about a female astronaut trapped aboard the International Space Station after the rest of her crew is killed.  Warner Bros. acquired New Line in 2008 and owns and controls its assets, including the film rights to my novel Gravity. Despite our arguments that the two companies are inextricably bound together, the court ruled that Warner Bros. is not liable for New Line’s contractual obligations to me.

Nor can I sue for copyright infringement, as my Gravity film rights are owned by New Line. The only entity with the legal standing to sue for copyright infringement is New Line – and they will certainly not sue their parent company, Warner Bros.

This ruling allows me no possibility of remedy.  Even if the Warner Bros.’s film had copied my story word for word, there would be nothing I could do about it.

. . . .

The ruling was made without affording my attorneys any opportunity for oral argument. We were never given an opportunity for discovery.  We have been stopped at the courthouse door, unable to present the evidence we’ve amassed about the direct development links between my novel Gravity and Cuaron’s filmGravity.

The court has again granted me the opportunity to file an amended complaint, for which I am grateful. I am not by nature a crusader, but the consequences of this ruling could be devastating to all writers working in any media, including film, television, and publishing.

As one entertainment attorney (unconnected with my lawsuit) observed:

What is troubling about this case is that Gerritsen … attempted to protect herself through not only a standard assignment provision, but also required that New Line execute and deliver a Continuing Guaranty in which it guaranteed the “full and faithful performance” by Katja of all of Katja’s obligations under the Contract.Despite these precautions, “by virtue of a written agreement dated January 1, 2010, all intellectual property acquired by New Line at any time (in perpetuity) is deemed to be automatically transferred to and owned by WB. WB paid no consideration to New Line for entering into this agreement, nor is WB obligated to pay any consideration in the future when intellectual property rights are acquired by New Line and automatically assigned to WB. The express purpose of this agreement “is solely to vest in WB the benefits of specific rights-related provisions of Content Agreements” and per the agreement, “WB assumes no obligations under such . . . Agreements.”

With Sony, Dream Works Animation, Lions Gate, and MGM just a few of the possible players currently looking to acquire or be acquired, the ‘gravity’ of this situation should not be overlooked or downplayed.

Link to the rest at Tess Gerritsen

Here’s a link to Tess Gerritsen’s books

 

 

The Recent Tintin Ruling Offers a Valuable Reminder that Creators Need to Understand the Contracts They Sign

18 June 2015

From Ink, Bits & Pixels:

How well do you know the contracts you’ve sign?

In the case of the Belgian cartoonist Herge (or rather his estate), the answer is not very well.

The Comics Reporter and Artnet reported last week that the Herge estate has lost an important copyright lawsuit over Tintin, the famous Belgian cartoon character. The estate had sued a Netherlands-based Tintin fan club in 2012 over its use of the original copyrighted images in newsletters sent out to club members. The estate sued the club in a Belgian court, and after three years of legal wrangling the judge ruled in favor of the club.

And here’s where things get interesting.

The fan club won the case not because of fair use (as I would expect) or because the estate didn’t own the copyright (it still did). The estate lost this case after lawyers working for the fan club found and submitted an old contract which showed that Herge had assigned the publishing rights to his publisher in 1942. The court has ruled that 73-year-old contract was still valid, casting a legal shadow on all rights contracts for Tintin.

. . . .

Between the book rights, movie and tv rights, and most importantly the merchandising rights, the Tintin decision just upset contracts worth millions of dollars a year – no joke.

Link to the rest at Ink, Bits & Pixels and thanks to Michael for the tip.

PG says you should think long and hard before you commence litigation. In the nature of lawsuits, any relevant contracts are examined much, much more carefully after a suit is filed than they likely were before they were signed.

In PG’s litigating days, the local Legal Aid office asked him to represent an indigent client who was being sued by a large bank in connection with the repossession of the client’s auto by the bank.

Essentially, the bank loaned too much money on the auto and, following repossession, couldn’t recoup the full amount of the loan balance by selling the vehicle. They sued PG’s client for the deficiency.

PG told the bank’s attorney that the man had no money (you had to be indigent to qualify for Legal Aid assistance) and, even after the bank succeeded in the lawsuit (an almost certain thing), there wasn’t property or income available to pay any meaningful portion of the amount owed.

The bank’s attorney insisted on a trial because PG’s client had signed a contract and contracts were sacrosanct, dammit.

During his trial preparation, PG discovered the bank had made a basic error in drafting its form auto loan documents. PG had no obligation to disclose his discovery to the other side and he decided it would be interesting to surprise the bank’s attorney with this news during the trial.

The bank’s big attorney brought two little attorneys with him to court and PG brought his briefcase (in later times, he would bring his computer, but this is an old story).

The bank presented its slam-dunk case and PG pointed out that the document the bank had required his client to sign referenced a specific statute number as its basis for repossession. That statute number referred to nothing. There was no statute with that number. The bank couldn’t enforce a non-existent statute against PG’s client.

The bank’s lawyer said that the bank clearly meant to reference another statute number that did exist. The little attorneys frantically paged through stacks of papers.

PG responded that the bank wanted to strictly hold his client to the detailed provisions in the loan documents and, in fairness, PG thought the bank ought to be held to the specific language it had included in documents PG’s client had signed. Contracts were sacrosanct, dammit.

Darned if the judge didn’t rule in favor of PG’s client.

The bank’s lawyer was very upset and said the bank would appeal. PG pointed out that, since this was a standard bank form, the bank had probably used the same document for thousands of auto loans. (It was a very big bank.)

An appeal would be a higher profile affair than a trial in a small courtroom with no one other than the parties and their attorneys in attendance. Did the bank want additional publicity about its defective documents and their imaginary statute?

Shortly thereafter, the bank dismissed its suit and released PG’s client from any claims.

So, there’s one war story about unanticipated consequences that can arise during a lawsuit.

 

 

French Privacy Watchdog Orders Google to Expand ‘Right to Be Forgotten’

15 June 2015

From The Wall Street Journal:

France’s data-protection regulator ordered Google to expand Europe’s new right to be forgotten to the search engine’s websites world-wide, escalating a fight over the territorial scope of the divisive new rule amid a broader battle between U.S. tech firms and European authorities.

France’s Commission Nationale de l’Informatique et des Libertés, or CNIL, said Friday that it issued a formal order to Google to begin applying right to be forgotten removals it is processing to “all domain names” of the search engine globally, including Google.com, not just those that are aimed at Europe, such as google.fr.

“For delisting to be effective, it must be world-wide,” said Isabelle Falque-Pierrotin, the head of the CNIL. “It is a question of principle. Google must respect the rights of European citizens.”

. . . .

When it comes to the right to be forgotten, since last summer, Google executives have repeatedly said that they would move quickly to implement the decision, but would only remove links from the European versions of Google’s search engine, such as google.es, or google.de, not from google.com. The reason: They say doing so could create the precedent that one region can set global rules for the Internet.

Link to the rest at The Wall Street Journal (Link may expire)

PG keeps thinking there’s a SF novel to be written about abuse of the right to be forgotten and a related right to forget.

Is Apple Music the ebooks antitrust case all over again?

13 June 2015

From Fortune:

State attorneys general in New York and Connecticut are the latest to poke their nose into Apple’s arrangements with record labels, seeking out possible antitrust activities. The whole thing, however, feels less an illegal conspiracy than a stunt cooked up by competitors and politically ambitious regulators.

In case you missed it, news of the two investigations came the same week as the launch of Apple Music, a new service that will let users stream songs for $10 month. The state attorneys general, who say they want to find out if Apple and the record labels are conspiring to squeeze out “freemium” streaming services like Spotify, are following similar inquiries by the FTC and the European Union.

News accounts were quick to note that Apple has been here before, pointing to the company’s role as the mastermind of conspiracy in which publishers fixed the price of ebooks (a judge found Apple liable, but an appeals court is still weighing the verdict).

. . . .

“If Apple is doing independent agreements, that’s fine. There’s nothing illegal with Apple coming out with a paid subscription service,” said Andre Barlow, an Washington-based attorney who formerly worked on antitrust cases at the Justice Department. “These preliminary investigations are likely the result of competitors’ complaints.”

Barlow added that Apple would only face antitrust trouble if it had tried to create collusion between the record labels or abused dominant market power. Collusion is very unlikely, he said, given that Apple is currently subject to an antitrust monitor and because both the company and the record labels would be wary about improprieties in the wake of the high-profile ebook trial. In other words, Apple and the labels would be crazy to even try something shady in the first place.

As for abuse of market power, Apple’s influence has waned significantly in the music market since its heyday as a digital music selling powerhouse. In the realm of music streaming, Apple will be just one more player in a crowded market that already consists of Spotify, Rdio, Pandora, Tidal, YouTube, Rhapsody SoundCloud, and others. Apple will be hard-pressed to contend in this field, let alone dominate it.

Link to the rest at Fortune and thanks to Cheryl for the tip.

Amazon Hit with EU Antitrust Probe into eBook Contracts

11 June 2015

From Ink, Bits & Pixels:

It seems the EU has suddenly taken an interest in the most-favored-nation clause found the contracts some  ebook retailers have signed with publishers

The European Commission opened a formal antitrust investigation into Amazon’s ebook business on Thursday, opening yet another front in mounting EU scrutiny of America’s global tech giants.

. . . .

The Commission said it would look in particular into certain clauses included in Amazon’s contracts with publishers. These clauses, it said, required publishers to inform Amazon about more favorable or alternative terms offered to Amazon’s competitors, a means to ensure Amazon is offered terms at least as good as those of its competitors.

In the Amazon ebooks case, the Commission said it had concerns that such clauses may make it more difficult for other e-book distributors to compete with Amazon by developing new and innovative products and services.  “Amazon has developed a successful business that offers consumers a comprehensive service, including for ebooks,” Competition Commissioner Margrethe Vestager said in a statement.

“Our investigation does not call that into question. However, it is my duty to make sure that Amazon’s arrangements with publishers are not harmful to consumers, by preventing other ebook distributors from innovating and competing effectively with Amazon.”

Link to the rest at Ink, Bits & Pixels and thanks to Chris for the tip.

Publishers win landmark case against ebook pirates

27 May 2015

From The Financial Times:

British publishers have won their first ever blocking order against pirate ebook sites, as the battle over online copyright spreads beyond music and film.

A ruling by the High Court in London means that internet service providers, such as BT, Virgin Media and Sky, have 10 days to block access to the sites, which are hosted in Russia and the US.

The book industry has been less affected by piracy than music labels, thanks partly to the early development of a legal market in ebooks by Amazon. But piracy has nonetheless become a “huge issue” that is “particularly problematic in some genres, such as student textbooks”, researchers at Enders Analysis wrote last year.

. . . .

“Between them the sites purport to hold around 10,000,000 ebook titles and have been making substantial sums of money, primarily through referral fees and advertising,” said the Publishers Association, which represents publishers including Penguin Random House, part-owned by Pearson, parent company of the Financial Times. “None of this money has been going back to either the publisher or the author(s) of the works.”

 

Link to the rest at The Financial Times and thanks to Suzie for the tip.

FT is behind a paywall, but if the link doesn’t work you might try copying the title of this post (which is the title of the FT article) and pasting it into a Google search. That may give you a working link to the article.

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