Indie bookstores sue: the end of Kindle-specific DRM?

Indie bookstores sue: the end of Kindle-specific DRM?

I wanted to wait to write about the

lawsuit filing document

by three bookstores against Amazon and the “Big Six” publishers (Random House, Penguin ((those two are in the process of merging)), Simon & Schuster, Hachette, HarperCollins, and Macmillan) alleging that, through the use of DRM (Digital Rights Management), they have unfairly cut independent bookstores out of the e-book market, until I had a chance to really read it. This is a class action suit, on behalf of all independent bookstores which sell e-books.

IANAL (I Am Not A Lawyer), but my basic understanding of the Sherman Act (which is the basis of the suit) is that on the one hand, you can’t get together and act to constrain trade, and on the other, you can’t have a monopoly.

It’s a lot more shaded and complex than that, and even having 100% of a market doesn’t make you automatically a monopoly.

If the suit were to succeed, I think the likely result would be that publishers would sell e-books with “open source DRM”, meaning that you could buy an e-book from an independent store (but not meaning that you wouldn’t be prohibited electronically from copying and distributing that book).

The filing is not particularly long, or terribly steeped in legalese…you may want to read it yourself.

I think it is a long shot, but again, I’m no real expert.

From Amazon’s defense viewpoint, there are a couple of obvious angles.

First, Amazon allows publishers to sell e-books without DRM through Amazon. Tor (a division of Macmillan) does it, for example, and indie publishers using Kindle Direct Publishing can opt for that as well. If publishers don’t choose to do that, that is their choice.

Second, there are competitors. You can buy most of the same e-books from Barnes & Noble, Sony, or Apple…certainly, that’s true of many of the most popular books. The existence of Kindle-specific DRM coding doesn’t prevent other coding. Could independent bookstores come up with a DRM plan that the publishers would accept? I think so, but it doesn’t seem to me like that is Amazon’s issue.

On the publishers’ side, it might be trickier.

As I understand it, you can’t, as a supplier, not give retail stores an equal opportunity to buy and sell your goods, especially if you get together with other like entities to enact a policy like that. Let’s say you make a…widghookie. You set a wholesale price for it. Then, you decide you won’t sell it to any stores managed by people with…oh, blue eyes. Even though the blue-eyed people offer you the exact same compensation as the other people. That’s a very simple illustration, and lawyers, please be welcome to explain why it might be incorrect.

Let’s say your widghookie has a wholesale price of a gazillion dollars. That’s going to price small stores out of selling it, but it wouldn’t be a violation…as long as,if a small store can raise that gazillion dollars somehow, they can buy it (and resell it to the public).

If the publishers have not allowed independent stores to develop a similar DRM plan which they accept, then I think they have a problem.

I think that’s unlikely to be an issue, though.

The suit makes some odd points…

  • It suggests that the introduction of Kindles allowed e-books to be read on a portable device. Actually, there were already at least ten EBRs (E-Book Readers) in the US market when the Kindle came out in 2007…including Sony being in the market. The Kindle transformed the market in part by allowing wireless downloads, in part by being associated with Amazon (which was associated in a strong way with books), and yes, in part by getting fuller tradpub (traditional publisher) participation (in my opinion, on all three of these). That might have been an interesting argument: did tradpubs enter the market more strongly because of Amazon’s DRM? 
  • The suit is simply wrong when it says, “All e-books sold by AMAZON contain the AZW DRM.” As I mentioned above, selling with DRM is optional at Amazon

Let’s say that the suit continues to the point where Amazon might choose to settle. Could I see that happening?

While I think it’s unlikely, yes. I could see Amazon dropping DRM. There are other ways to bind buyers to you, including great customer service.

The unintended consequence of no DRM, of course, would be publishers suing people who were distributing books. DRM, when used properly, can work as an infringement preventative (by average users). This is always a difficult thing to discuss, because some people are very passionate about not liking DRM (and certainly, the success of DRM MP3s for music can be legitimately raised, even though the use models of books and songs are quite different). Publishers can reduce casual (and often unintended) infringement using DRM, or they can pursue people legally after the fact.

We’ll keep an eye on this suit, but I don’t think it will have the impact of the Department of Justice’s legal action against five of the Big Six and Apple over the Agency Model.

What do you think? Is the use of platform-specific DRM inherently anticompetitive? Would the publishing industry be helped or hurt by dropping the sort of DRM that exists now? Was DRM perhaps important in the nascent stage of the e-book industry, but no longer as important? Feel free to let me and my readers know by commenting on this post.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.


9 Responses to “Indie bookstores sue: the end of Kindle-specific DRM?”

  1. Edward Boyhan Says:

    I haven’t thought a lot about the specific merits of this case. But you do bring up some misapprehensions about U.S. antitrust law. I. myself, had these same misapprehensions until I read the analysis as to why the FTC/DOJ decided not to bring an action against Google.

    The major thrust of US antitrust law is to protect consumers. Technically it is not illegal to be a monopoly. However, if your market penetration is substantial (you don’t even have to be a monopoly), you are required not to engage in certain kinds of activities that could be deemed to be harmful to consumers. As a monopoly or even a substantial market participant, you can be downright nefariously evil to your competitors. There is nothing to prevent a company from engaging in any business practice targeted against a competitor — as long as that behavior does not harm consumers. In the Google case, everyone could agree that Google practices made life difficult for competitors, but the DOJ/FTC could not find any compelling evidence that this behavior harmed consumers. In fact when asked, consumers tended to like what Google was doing.

    On its face this case v Amazon seems similar, the burden will be on the indie booksellers to show how the DRM practices harm consumers. Freezing the indie booksellers out of the market is not on its face harmful to consumers (especially as you pointed out that there are many different eBook distribution channels). I haven’t thought much about the merits of this case, but I suspect the plaintiff class will have to show how the Amazon/Big6 behavior harms consumers — that it harms the indie booksellers is to my mind irrelevant.

    Looked at another way, there is nothing in business law that says that a creator of a product or service must allow anybody willy nilly to become a distributor of that product/service. In fact exclusive distribution arrangements are quite usual. In fact look at the distribution arrangements in Hollywood for movies — there the producers of a movie, usually enter into an exclusive arrangement with a studio for distribution of a film — I don’t see other studios suing the production company because they can’t distribute the film, 😀

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I can see the analogy to producers of a movie, although one could argue that it is more like the ending of the studio system (where movie studios both produced the movies and owned the movie theatres). That was ended voluntarily, but under concern that it might be ended through legal action. That’s a case where the “retailers” didn’t have an equal opportunity to distribute the goods.

  2. tuxgirl Says:

    I found the court filing pretty interesting… It seemed to have a good amount of misinformation, which really makes me doubt its chance of success….

    • Bufo Calvin Says:

      Thanks for writing, tuxgirl!

      I’m often amazed at how…imprecise legal actions and filings can be. It almost always seems like they suddenly realized that the homework was due tomorrow. 😉

  3. Man in the Middle Says:

    Speaking as a consumer, I WANT there to be only one format for ebooks, and for it to stay unchanged for decades, so I can trust it as a permanent replacement for most of my printed books. My concern is with making sure I can still read those ebooks even if Amazon is no longer around some day, just as I can now with MP3 music that has already completely replaced my CD, cassette, and LP music libraries. If that can be done without giving up DRM, fine by me. If not, then DRM will eventually have to go. Meanwhile, Amazon has done the next-best thing, by making readers for its ebook format available for any device willing and able to host them. I recently deleted iBooks from my iPad and iPhones after not using it even once in the past year. Why should I? Their Kindle app does everything I want, without requiring me to support two incompatible ebook formats.

    Presumably the suing bookstores could already profit at least a bit from the Kindle by selling it, just as Barnes and Nobles stores sell the Nook. There might also be a way Amazon could reward them somehow for Kindle purchases made from their WiFi router, much as it already rewards associated Web sites for sales resulting from Amazon links.

    If I’m a typical customer, the glory days are over for bookstores. I used to visit one at least once a week. Now I walk past a Barnes and Nobles weekly, and almost never have any urge to step inside.

    • Bufo Calvin Says:

      Thanks for writing, Man!

      Well, it’s important to note that CDs, cassettes, and LPs are examples of hardware incompatibility, not software. You can convert a number of different formats using Calibre, and I don’t think that the risk is the same.

      The idea of paying a store advertising fees for sales originating with their wi-fi network is an interesting one…might do something to alleviate the concerns about “showrooming”.

  4. cinisajoy Says:

    By the way B&N has DRM too and they require a credit card to protect the DRM. Amazon you can have either a credit card or a gift card.
    Oh and just for an amusement, at B&N, the credit card does not have to be in your name.

  5. Tom Semple Says:

    I think this will go down in history as a ‘nice try’, or a ‘hail mary’.

    Ironically, the lawsuit makes reference to Apple dropping DRM on its music files in response to lawsuits. But as I remember, music publishers made the first move here by enlisting Amazon in the fight against the evil Apple monopoly, and allowing Amazon to offer DRM free MP3 files. It was not long before Apple followed suit (probably at their own insistence). The lawsuits went away, but it’s far from clear they were decisive in causing DRM to go away.

    If indies want to compete with Amazon, they need to offer something that’s ‘better’ or at least comparable or workable for their customers.

    Perhaps the ABA/Kobo deal is not so great for indies or their customers. For example, I don’t think it is easy enough for customers to sign up (you need to buy a Kobo branded device from the bookseller, and create a new Kobo account for it even if you already have one). One hopes at least that it is better for them than selling Amazon gift cards, or putting the Amazon Affiliates widget on their web site.

    Unfortunately even if they are able to somehow win this lawsuit, and kill DRM, I think it would fail to establish them in a strong position. There is a lot more to selling ebooks than delivering a digital file. The ecosystem is at least as important and becoming more so.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      Excellent point!

      It’s easy to find something which is making your life difficult, and start saying that if it was removed, everything would be swell. Removing DRM (Digital Rights Management) would not suddenly make people equally likely to buy books at independent stores as they are to buy them from Amazon…

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