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Pearson Education, Inc. v. Allen Air Conditioning Co.

United States District Court, S.D. New York

May 22, 2014

PEARSON EDUCATION, INC. and JOHN WILEY & SONS, INC., Plaintiffs,
v.
ALLEN AIR CONDITIONING CO., et al., Defendants.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

Before this Court is plaintiffs and Counterclaim-defendants Pearson Education, Inc.'s ("Pearson") and John Wiley & Sons, Inc.'s ("Wiley") (together, "Publishers") motion to dismiss defendant and Counterclaim-plaintiff Ganghua Liu's ("Liu") first amended Counterclaims. The amended Counterclaims asserts antitrust violations arising under Sections 1 and 2 of the Sherman Act, as well as state law claims for tortious interference with existing and prospective business relationships. (See Defendant Ganghua Liu's First Amended Counterclaims ("FAC") ¶¶ 102-138, Dec. 4, 2013, ECF No. 108.)

Liu, a seller of foreign editions of books published by Pearson and Wiley, alleges that they, along with other publishers, agreed to engage in a variety of anticompetitive conduct against importers of foreign editions of publications (such as Liu) for the purpose of restraining competition and maintaining monopoly positions in their publications. The centerpiece of the alleged conduct relates to coordinated litigation efforts against Liu and others. Liu also asserts that Pearson and Wiley agreed between themselves and with others to enter into an agreement with an online retailer, Valorebooks.com, to refuse to deal with Liu. Finally, Liu asserts that Pearson and Wiley also entered into agreements with other online retailers such as Amazon.com and Half.com to refuse to deal with her.

Liu's allegations fail to state a cognizable antitrust claim. There is nothing unlawful regarding the Publishers' coordinated commencement of litigation to protect their copyrights from a similar course of conduct - even if that litigation fails. Such activity is protected by the Noerr-Penningon doctrine and does not otherwise constitute an antitrust violation. Liu's remaining allegations of concerted action fail for a number of reasons - but as a threshold matter, they all lack the required specificity as to the "who, what, when, and where" of the various alleged agreements. Without such supporting facts, the allegations are no more than speculation that something nefarious must have been (and still be) afoot. Such suspicions are insufficient to state a claim for an antitrust violation.

For the reasons set forth below, the Publisher's motion is GRANTED.

I. FACTUAL ALLEGATIONS

For purposes of evaluating a motion to dismiss, the Court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in plaintiff's favor. Chambers v. Time Warner, Inc. , 282 F.3d 147, 152 (2d Cir. 2002). While the amended Counterclaims contain a variety of assertions, many of which are repeated at different times, only the following are relevant to resolution of the instant motion.[1]

Liu imports foreign editions of various textbooks. The amended Counterclaims allege that Liu was a student up until 2001 and during that time experienced the high cost of textbooks. (Id. ¶¶ 95-98.) It appears that Liu's business of purchasing textbooks abroad and selling those foreign editions in the United States began during the time she was a student: she needed a statistics book and realized the version made in China was much cheaper; she called a friend in China to help order the book directly. (Id. ¶¶ 95-99.) "Having found this new source [of cheaper textbooks, Liu] began selling those books on Amazon.com and Half.com to supplement household income." (Id. ¶ 98.)

Among the publishers whose texts Liu purchases abroad for resale in the United States are those of the Pearson and Wiley. These companies, along with other publishers, are alleged to collectively control 87% of "the market for textbooks assigned by faculty teaching at United States colleges and universities." (FAC ¶ 8.) Pearson and Wiley together constitute 35.8% of that market. (Id.) Pearson and Wiley are not alleged to have any corporate relationship or affiliation.

Liu alleges that in the past, the Department of Justice found that Pearson and a textbook company with which it wanted to merge (a unit of Viacom) competed in "no fewer than 32 college textbook markets." (Id. ¶ 71.) Divestiture of a number of textbook titles was required as a condition of clearance. (Id. ¶ 72.) Liu alleges that Pearson and Wiley therefore compete with respect to trying to persuade college professors to choose their textbook. (Id. 75.)

According to Liu, both Pearson and Wiley charge more for U.S. editions of textbooks than for foreign editions. (Id, 80.) Liu further alleges that Pearson and Wiley take steps to discourage or deter the purchase of foreign editions for U.S. use by including statements such as "Not for sale in the U.S. or Canada" on an inside cover. (Id. ¶¶ 80-84.) Special online or bundled materials available only to purchasers also make it difficult to substitute foreign or used editions for new editions. (Id. ¶ 94.)

According to Liu, Pearson, Wiley, and other publishers joined together to "deal with" the problem of competition from used book sales. They allegedly engaged in all of the following conduct in order to reduce price competition: conspiring with each other to prevent copies of textbooks first sold in foreign markets from being resold in the U.S.; making "identical decisions" with respect to licensing their copyrights for distribution of foreign editions; and engaging in a "campaign" to reduce competition (and "impair" the First Amendment rights of U.S. booksellers and their customers) by instituting litigation and unnecessarily issuing new editions of textbooks or bundling additional materials with U.S. editions.

In support of these allegations Liu asserts that Pearson, Wiley, and other publishers have an economic interest in suppressing the sale of new and unused books sold outside of the United States. In furtherance of this interest, in 2006, Pearson, Wiley and other publishers are alleged to have brought various and substantively identical lawsuits. (Id. ¶ 48.) In 2007, "they" jointly sued Valore, Inc., owner of the online bookstore, ValoreBooks.com. (Id, ¶ 49.) This litigation is alleged, without any detail, to have been a sham. (Id. ¶ 50.)

One of the lawsuits - brought against a reseller similarly situated to Liu - went to the Supreme Court on the issue of whether the first sale doctrine applied to foreign sales. Kirtsaeng v. John Wiley & Sons, Inc., ___ U.S. ___ , 133 S.Ct. 1351 (2013). The Supreme Court held that it does. Id. at 1356-57. Liu alleges that despite this ruling, Pearson and Wiley have refused to release those with whom they have "extracted agreements to suppress [foreign edition sales into the U.S.]." (FAC ¶ 57.)

At some point, Liu's seller accounts allegedly were blocked and she was informed these services did not want her selling international editions on their sites "but that it was not illegal for her to do so." (Id. ¶ 99.) Liu's accounts at Amazon.com, Abebooks, Alibris, eBay, and ValoreBooks.com all remain blocked. (Id. ¶ 57.) Liu alleges "upon information and belief' that Amazon.com and Half.com "blocked her accounts because of complaints from the respective book publishers, and not due to their own independent decision to refuse to do business with [her]." (Id. ¶ 100.)

Rising costs of textbooks have been the subject of various governmental inquiries. (Id. ¶ 89.)

II. THIS LAWSUIT

On July 3, 2008, Pearson and Wiley sued Liu - along with Allen Air Conditioning Co., Jian Liu, all d/b/a JMBooks d/b/a Linda Liu, and John Doe Nos. 1 through 5, for copyright infringement and Lanham Act violations. (ECF No. 1.) On February 6, 2009, Liu first asserted antitrust counterclaims. (ECF No. 18.) On May 21, 2010, the Court of Appeals stayed those claims - as well as the remainder of the action - pending a decision in John Wiley & Sons, Inc. v. Kirtsaeng. (ECF No. 32.)

On March 19, 2013, the Supreme Court decided Kirtsaeng. Following this decision, Pearson and Wiley's copyright claims were dismissed. (ECF Nos. 51; 74.) On June 28, 2013, Pearson and Wiley moved to dismiss Liu's counterclaims. (ECF No. 57.) On October 21, 2013, the Court held a conference during which time it highlighted a number of pleading deficiencies in Liu's counterclaims. (ECF No. 97.) Liu was provided an opportunity to re-plead, and on December 4, 2013, she filed her amended Counterclaims. (ECF No. 108.)

On December 23, 2013, Wiley and Pearson filed a joint motion to dismiss Liu's amended Counterclaims. (ECF No. 115.) That motion became fully briefed on January 30, 2014. (ECF No. 127.)

The amended Counterclaims assert two antitrust and two state law claims. In addition to the allegations set forth above, the First Counterclaim asserts that the Publishers engaged in a violation of Section 1 of the Sherman Act based on the following:

1. "[S]ome publishers made an agreement with an online retailer outside the United States to limit the number of copies of a given textbook that can be delivered to a single U.S. address in one order." (Id. ¶ 104.)
2. "Pearson and Wiley both concede that they each communicated with one or more college textbook publishers on the topic of collectively restraining the sale of foreign edition copies in the United States before taking action against a bookseller or Internet sales portal to prevent the importation into the United States, or prevent the sale within the United States, of foreign edition copies of its works before first having communicated." (Id. ¶ 106 (emphasis in original).)
3. "On information and belief, coming in response to complaints from customers in the [U.S.], from concerns voiced to investors, from communications reported to the [Government Accountability Office], and lacking any plausible pro-competitive justification for their conduct, the inescapable conclusion is that Pearson and Wiley agreed with each other (and possibly with some of their customers) to take the joint action described above to suppress competition...." (Id. ¶ 107.)
4. Wiley, along with other publishers, was a plaintiff in a lawsuit; it refuses to admit or deny whether it consulted with other co-plaintiff publishers in that lawsuit regarding whether it should accept a settlement offer from the defendant in that lawsuit. (Id. ¶ 109.)
5. "Pearson and Wiley, along with Cengage (Thomson) and McGraw-Hill, entered into an agreement with ValoreBooks.com, the online marketplace used by Ms. Liu, to refuse to allow Ms. Liu to sell her cheaper foreign edition books through their service." (Id. ¶ 113.)
6. "Upon information and belief, Pearson and Wiley also caused other online marketplaces, specifically Amazon.com and Half.com, to agree not to allow Mrs. Liu to sell Pearson books, Wiley books, or foreign edition books of their ...

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