ABA Litigation Update -- April 19, 2001 The Case Settles "So, did we win?" Independent booksellers couldn't be blamed for asking that question as news of the settlement of the case against Barnes & Noble and Borders was released. It is a question that independent booksellers rightly will ask for many days and week to come, particularly as the chains, not surprisingly, claim total vindication from the outcome. And while there is no easy answer, in some respects we clearly did win, in other respects we did not, and in yet other ways it is too soon to tell. Let's review. There are many points to keep in mind as we reflect on this settlement over the weeks to come. In a very material respect we had lost a major portion of the trial before it ever started. On March 19, 2001, the presiding judge, Judge William H. Orrick, granted summary judgment for the chains on our damages claims. The ABA team felt the ruling was both unprecedented and unfair, and very likely reversible on appeal. The judge based his ruling on the enormous difficulty associated with attempting to untangle the complex web of factors that have impacted the plaintiff bookstores during the "complaint" period in the case -- the web of (lawful) competition from the new chain superstores, the rise of price clubs and other non-traditional book outlets, the advent of Internet bookselling, and, in addition, the effects of unlawful competition resulting from the practices challenged in the case. In ruling that the plaintiffs had not adequately separated these effects, and indeed (under the judge's unduly rigorous requirements) had not isolated effects flowing from each specific deal from each individual publisher, the court allowed the chains to hide behind the fruits of their own potential wrongdoing. The ruling had several direct consequences on the trial. First, and most significantly, the trial became one focused only on "injunctive" relief and the chains' current practices. For reasons described below, that took away many of the most compelling claims in the case. In a damages case, the chains' practices dating back to 1994 would have been at issue (and the financial harm to the independents throughout that period). In an injunctive case, however, the principal focus was simply on what the chains are doing now -- and the evidence showed that many of the more egregious practices of the early years simply no longer exist, in large measure because of the aggressive position the ABA has taken through this and the earlier publisher litigation. Second, the judge's damages ruling took away the plaintiffs' right to a jury trial, and this became solely a bench trial to the court. So in certain ways we had lost before we started. And although we retained our right to appeal, we first had to finish this trial with all of its associated (and overwhelming) costs, then wait for resolution of the appeal (which typically would have taken two or even three years), and then only to have the right to come back and try the case all over again. So what did we win? The trial revealed that many of the favorable deals the chains once received have vanished -- some literally in the weeks before trial. Much of the trial focused on the fact that the chains long have entered secret contracts with Ingram, pursuant to which the chains received special discounts, incentives, returns privileges, and cash discounts. But the trial also revealed that the chains' terms with Ingram are no longer as favorable as they once were; that the chains now must comply with restrictions to receive these favorable terms; and -- most importantly -- that suddenly there are new programs available from Ingram that have never before been public. It appeared that the litigation itself had a direct effect on Ingram and the way it now may deal with both the chains and the independents. The trial also revealed that the chains have received discounts on RDC shipments of as much as 10% or more above drop-ship prices, but that these differentials do not exist anymore. The chains have received automatic "shortage" allowances of as much as 1.5%, but that those amounts do not exist anymore. It is through these changes that we truly "won" a portion of this litigation, but it is a victory that never will be recorded in a decision of the court, because the practices were stopped before the court had a chance to rule. So where does that leave us? It is hard to know. The terms of the settlement are quite unusual. The defendants agreed to pay $4.7 million -- and, no matter how they slice it, that is $4.7 million out of their pockets, and $4.7 million more than the chains received from us. But what is unusual, and perhaps lost in all the rhetoric surrounding the settlement, is that the chains did not get a typical, meaningful release. They paid $4.7 million, but only to get the ABA and these plaintiffs to lay down the sword for now -- in a forum where the ABA had lost its claim for damages, and faced an uphill battle in a narrowed-suit for injunctive relief before a judge who openly asked why the chains' acknowledged efforts to get better deals was not simply "what capitalism is all about." We have a different view of the law, but this settlement allows us, with an additional $4.7 million in hand, to continue to assert that view another day, another place. In that respect it certainly is not a win, but it also is not a loss. What is the ultimate outcome? It simply is too soon to tell. The trial has brought many practices to light, which will be discussed among booksellers, publishers, and wholesalers for months to come. Hopefully, this information will continue to bring about the change that clearly has occurred from 1994 to the present. If so, this effort, and all the litigation before it, will prove to have been a resounding success. If not, we have stepped back to fight another day. And sometimes that is the wiser course. ___________________________________________ To view past ABA Litigation Updates, click here. Topics: Fair Trade (B&N, Borders), ABA Flash, About ABA,