United States District Court, S.D. New York
[Copyrighted Material Omitted]
For Plaintiff Abbey House Media, Inc.: Maxwell M. Blecher, Jordan L. Ludwig, Los Angeles, CA; Eric M. Creizman, Creizman PLLC, New York, NY.
For Defendant Simon & Schuster, Inc.: Yehuda Lev Buchweitz, James W. Quinn, Jeffrey Leonard White, Weil, Gotshal & Manges LLP, New York, NY.
For Defendant The Penguin Group: Amanda Christine Croushore, Saul P. Morganstern, Kaye Scholer LLP, New York, NY.
OPINION & ORDER
DENISE COTE, United States District Judge.
Plaintiff Abbey House Media, Inc. (" Abbey House" ), d/b/a/ BooksOnBoard, has brought antitrust claims against Apple, Inc. (" Apple" ) and five publishing companies, including defendants Simon & Schuster, Inc. (" S& S" ) and Penguin Group (" Penguin" ). In response, S& S and Penguin filed counterclaims against Abbey House alleging copyright infringement and breach of contract. In this Opinion, the motion to dismiss the counterclaims is granted in part.
The following facts are asserted in the counterclaims and taken from documents integral to those claims unless otherwise noted. S& S and Penguin each had an agreement with Abbey House to act as its agent in the sale of e-books. S& S's agreement is dated August 24, 2010 (" S& S Contract" ). The Penguin contract is dated May 19, 2010 (" Penguin Contract" ).
While the terms of the S& S Contract and the Penguin Contract differ in some respects, they are structured identically. As an agent for the Publisher, Abbey House is given responsibility for selling e-books and providing customer service to consumers. Abbey House was paid a commission for each e-book sold. Each contract also included a third party, the Digital Fulfillment Provider (" DFP" ). The DFP was appointed by the publisher, but engaged by Abbey House, who was responsible for paying the fees of the DFP. In both contracts, the DFP was responsible for providing Digital Rights Management (" DRM" ) protection. DRM protection essentially works as a lock, restricting the manner in which digital files can be viewed and copied. DRM protection is commonly used on e-books and other digital files to prevent the unlawful copying and distribution of copyrighted material.
Under the terms of the S& S Contract, Abbey House was responsible for ensuring that e-book purchasers agreed to abide by content usage rules that permit only personal, noncommercial use. The contract states, in relevant part:
Agent will be responsible for . . . [conditioning] purchase and use of Publisher Works on a Customer's express agreement to Agent's content usage rules on its site which shall provide, among other things, that any use of Publisher Works is for personal and noncommercial use only . . . . All content usage rules and others statements of the terms of sale or other disclosures provided to customers shall be consistent with the terms of this Agreement.
(Emphasis added.) The preamble to the contract provided that S& S's e-books were to be sold solely for " personal . . . use without any time-based limitations."
To ensure that the e-books were not subject to unauthorized uses, the DFP was required to implement security measures:
[The DFP] shall implement such encryption and other measures as are necessary to ensure that Publisher works are secure from theft, unauthorized copying or retransmission, printing, infringement, unauthorized manipulation, or any other misappropriation (" Misappropriation" ) and shall transmit Publisher Works only in encrypted form.
. . .
[The DFP] shall utilize DRM, encryption, and/or security technology approved by [S& S] . . . to secure Publisher Works from Misappropriation. . .
(Emphasis added.) In the event that Abbey House became aware that any of S& S's works had been subject to " misappropriation" due to a breach of the security
measures, including DRM protection, Abbey House was required to " promptly inform" S& S publisher of the breach. All disclosures to customers were to be " consistent with the terms of the" contract.
Under the terms of the Penguin Contract, Abbey House was responsible for ensuring that the purchase and use of e-books was conditioned on a user's " express agreement to the Content Usage Rules." The Content Usage Rules provide that e-books may be used " solely for purchaser's personal and noncommercial use." To ensure that e-books were used solely for personal, noncommercial use, the contract provided that the DFP would use " commercially reasonable efforts to apply DRM to prevent End Users from printing, copying, or pasting [Penguin] Content or forwarding an e-book to a third party." The DFP was required to " immediately notify" Penguin if it became aware of " any unauthorized or improper use," including " the unauthorized downloading of eBooks by an End User or third part." The Content Usage Rules also provide that end users acquiring e-books may " use eBooks on up to six (6) transfer devices and an unlimited number of Non-Transfer Devices at the same time; or as allowed by then current publisher approved DRMs supported by the Digital Fulfillment Provider."
Abbey House's e-book store, BooksOnBoard, ceased all retail operations on April 6, 2013. Other operations and support ceased on April 30. Before ceasing operations, Abbey House posted an announcement on its website (" the Announcement" ). The Announcement advised customers that they can download their e-books onto their new reading devices by stripping DRM protection using information and tools that are ...