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DNAML Pty, Ltd. v. Apple Inc.

United States District Court, S.D. New York

June 5, 2014

DNAML PTY, LIMITED, Plaintiff,

Page 423

For DNAML Pty, Ltd., Plaintiff: Michael J. Guzman, Derek T. Ho, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, D.C.

For Apple Inc., Defendants: Theodore J. Boutrous, Jr., Daniel G. Swanson, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA; Lawrence J. Zweifach, Gibson, Dunn & Crutcher, LLP, New York, NY; Cynthia Richman, Gibson, Dunn & Crutcher, LLP, Washington, D.C.

For Simon & Schuster, Inc., Defendant: James Q. Quinn, Yehudah L. Buchweitz, Weil Gotshal & Manges LLP, New York, NY.

For Penguin Group (USA) Inc., Defendant: Saul P. Morgenstern, Amanda C. Croushore, Kaye Scholer LLP, New York, NY.

For Hachette Book Group USA, Inc., Defendant: Walter Stuart, Richard Snyder, Samuel Rubin, Freshfields Bruckhaus Deringer U.S. LLP, New York, NY.

For HarperCollins Publishers LLC: C. Scott Lent, Arnold & Porter LLP, New York, NY.

For Macmillan Publishers Inc. and Verlagsgruppe Georg Von Holtzbrinck GmbH, Defendant: Joel M. Mitnick, Sidley Austin LLP, New York, NY.

Page 424

OPINION & ORDER

DENISE COTE, United States District Judge.

DNAML Pty, Ltd. (" DNAML" ) brings this action against Apple Inc. (" Apple" ) and five book publishers (" Publishers" ), pursuant to Section 1 of the Sherman Antitrust Act, to recover damages it asserts it sustained due to the defendants' conspiracy to fix prices and reduce competition in the e-book industry. The defendants have moved to dismiss the complaint. For the following reasons, the motions are granted as to any claims arising from either foreign sales of e-books or Apple's policies concerning its App Store, and are otherwise denied.

BACKGROUND

The complaint contains the following allegations, which are accepted as true for purposes of this motion. DNAML is an Australian company. It has been involved in the e-book industry, primarily as a software developer, for over a decade. It has

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offered software tools for authors to produce their own e-books and created websites that feature information about the e-book industry.

At some point, DNAML began selling e-books on its websites www.eBook.com and www.sharewareebooks.com. Although DNAML did not have its own dedicated device for reading e-books, consumers could purchase an e-book from DNAML's websites and download the e-books to their devices.

DNAML predicated its sale of e-books on aggressive price competition. It built software marketing tools to provide discounts and discounted bundling services. It regularly offered discounts of over 20%. During its " Happy Hour" promotions, it offered popular e-book titles at even steeper discounts.

DNAML sold e-books in bundles, allowing consumers to save money when purchasing multiple books at one time. Sometimes, DNAML gave away bundles of e-books for free with the purchase of other digital products. It also offered discount coupons.

Two of the Publishers -- Hachette Book Group, Inc. (" Hachette" ) and HarperCollins Publishers, LLC (" HarperCollins" )[1] -- were the primary e-book suppliers to DNAML. DNAML converted thousands of their titles to its own proprietary digital rights management format (" DRM" ).

As a result of their conspiracy with Apple, which is described below, certain unnamed Publishers demanded that DNAML sign agency agreements if DNAML wished to continue to sell their e-books. The agency agreements gave the Publisher control over the retail prices of e-books. As a result of these agency agreements, DNAML was forced to stop discounting its prices for e-books and offering discount-driven promotions. This crippled DNAML and precluded it from establishing a foothold in the e-book retail market.

DNAML suffered a second injury. It was in the final stages of developing an app known as the DNL Reader version 2. This app would allow consumers to purchase and read e-books on an iPad, iPhone, and other tablet devices. In 2011, intending to " eradicate retail competition and price transparency," Apple modified its policies regarding apps (" App Store Policies" ). Under the modified App Store Policies, an e-book seller wishing to sell an e-book through its app had to pay Apple a 30% fee on top of what the retailer was already paying the publisher. As a result, Apple's iBookstore became the only " practical" way to purchase e-books for Apple devices. Knowing that it could no longer offer competitive prices, DNAML ceased development of its DNL Reader version 2 app for iPads and iPhones.

DNAML came to realize that it could not establish an e-book retail presence through its domain name eBook.com. ...


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