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GERLINGER v. AMAZON.COM

March 23, 2004.

GARY GERLINGER, individually, on behalf of all others similarly situated, and on behalf of the California general public Plaintiff,
v.
AMAZON.COM, INC.; BORDERS GROUP, INC.; BORDERS, INC.; BORDERS ONLINE, LLC; and BORDERS ONLINE, INC., Defendants



The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District

MEMORANDUM & ORDER RE: PLAINTIFF'S MOTION FOR JUDGMENT ON THE PLEADINGS: DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
Plaintiff challenges an agreement between Amazon.com, Inc. and Borders Online, LLC as violating federal and California antitrust laws, the California unfair competition law and the common law of unjust enrichment. Defendants have moved for summary judgment on all claims. Plaintiff moves for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) or in the alternative, for a continuance pursuant to Rule 56(f) to conduct further discovery. Having considered the submissions of the parties, and for the reasons set forth below, the court rules as follows.

BACKGROUND*fn1

  Plaintiff is a consumer who purchases books online and who "purchased books directly from at least one of the [d]efendants." FAC ¶ 10. Amazon.com Inc. ("Amazon") is a market leader in the online retail book market. Amazon has invested hundreds of millions of dollars in technology and the content design of its website, Amazon.com. Declaration of Steven Kessel ("Kessel Decl. ¶ at ¶ 6. In addition to selling products to consumers, Amazon.com generates revenue by providing technology and business Page 2 services to other retailers. Declaration of Daniel Cooper in Support of Defendants' Motion for Summary Judgment ("Cooper Decl.")*fn2 at ¶ 3. Beyond selling its own products on its website, Amazon.com operates Amazon Marketplace where sellers of new and used books (among other products) offer their products for sale on the Amazon.com website. When a visitor to the Amazon.com website searches for a book title, they will be provided with both the Amazon.com offering for that title as well as any available Marketplace seller's offering and prices for that title, even if the price is lower than that offered by Amazon.com. Id. at ¶ 5. See also Declaration of Kyle Graham ("Graham Decl.") at ¶ 2 (copy of book Empire Falls available on Amazon.com website through Amazon.com for $14.46 and from Amazon Marketplace seller for $11.37, both including standard shipping).

  Amazon.com also hosts auction sites on its website, where sellers offer products available for consumers to bid on. Merchants can also establish their own "storefronts" through Amazon.com's zShops, which enables sellers to offer their merchandise for sale at the prices they choose. Thus, a given product on Amazon.com's website may be listed for sale simultaneously by Amazon.com as well as several different Marketplace, zShops, and auction sellers. Cooper Decl. at ¶ 6.

  Amazon.com has also entered into collaborations with other retailers. These collaborations take many different forms. For example, Amazon.com and Toys `R' Us agreed to launch a toy and video game store on the Amazon.com website. In that arrangement, Toys `R' Us supplies the inventory and Amazon.com provides the hosting, order fulfillment and customer relations services. Cooper Decl. at ¶ 7. For Target Stores, Amazon.com operates Target's website selling Target's products under the Target brand name.

  Amazon.com also has arrangements with a number of partners who wish to maintain a presence on the web but do not wish to incur the cost involved in selling products through the Internet. In these arrangements ("Syndicated Stores") Amazon.com uses the partner's website, (which site retains the partner's name and URL) but Amazon.com sells its own products and is responsible for filling orders and for customer service. Amazon.com's partners in these arrangements earn commissions on the products sold through the site. Amazon.com has a "Syndicated Store" arrangement with Borders as well as with partners such as Virgin Mega stores and Waterstones in the United Kingdom. Id. at ¶ 8. Page 3

  Defendant Borders, Inc. is a wholly-owned subsidiary of defendant Borders Group, Inc. Defendant Borders, Inc. (collectively "Borders") operates and manages more than 400 brick-and-mortar stores. Declaration of Edward Wilhelm ("Wilhelm Decl.) at ¶ 2. Borders touts itself as the nation's second largest operator of retail book "superstores." Borders did not launch a website until 1998 and even then did so with some reservations based on its lack of experience as an Internet retailer and the fact that at that point the ability to earn an acceptable return on investment in the Internet arena was uncertain. Id. at ¶ 5. Borders did not make a large capital investment in its website. Id., at ¶ 7. Borders instead invested in expansion and improvement of its brick-and-mortar stores. Id. at ¶ 8. Between 1998 and 2000, Borders.com sales accounted for less than 1% of Borders' total consolidated sales. Sales on the Borders.com website account for less than one-tenth of one percent of industry-wide book sales (i.e., both online and brick-and-mortar stores book sales). Kessel Decl. at ¶ 14; Graham Decl., Exh. L at 2 and Exh. M. *fn3

  Although sales on Borders.com increased, so did its losses. Wilhelm Decl. at ¶ 9 (In fiscal year 1999, Borders.com generated sales of $17.9 million and losses of $17.2 million but in fiscal year 2000, Borders.com lost $29.7 million on sales of $27.4 million). Because of these losses, in 2000 Borders considered various options in regards to its website such as shutting it down, spinning it off as a public company or outsourcing the web site to a third party.*fn4 In November of 2000, Borders began discussions with Amazon.com about a co-branded website. Id., at ¶¶ 10-12. At this time Amazon.com was actively pursuing its strategy of providing technology and business services to other retailers and believed that entering a venture with Borders would "further validate its model of providing services to brick-and-mortar retailers." Cooper Decl. at ¶ 11. Moreover, the Agreement with Borders helped Amazon.com achieve additional economies of scale, thus reducing Amazon's costs. Id. At ¶ 11; Kessel Decl. ¶ 18.

  In April 2001, Amazon and Borders executed a "Syndicated Store" agreement (the "Agreement" or "Mirror Site Hosting Agreement") under which they would jointly relaunch www.borders.com as a co-branded website.*fn5 The Agreement provides that www.borders.com will be operated by Amazon and that Amazon will provide the inventory fulfillment, customer services, and site content for the new co-branded website. Under the Agreement, Amazon.com unilaterally determines the selection of products offered, the Page 4 terms of sale and the prices for the books sold on the web site except for those books available for in — store pickup at a Borders brick-and-mortar store. Borders sets the price for books to be purchased online but picked up in its stores. Wilhelm Decl. at ¶ 13.

  Amazon is the actual seller of the books sold on the website and accordingly retains proceeds for those sales. Borders paid Amazon.com a one-time fee for creating the website and Borders receives a commission on each sale. Defendants assert that the Agreement is a service agreement. Amazon must achieve certain service levels or risk being in breach of the Agreement which would enable Borders to terminate the Agreement prior to the expiration of the Agreement term (originally two years, then extended an additional three years). Borders alleges that its objectives in entering into the Agreement were to "maintain a retail presence on the Internet, preserve a connection from the Internet back to [their] stores, reduce [their] losses and improve [their] financial returns." Wilhelm Decl. at ¶ 12. The Agreement has no impact on the legal ownership of the www.borders.com URL which continues to be held by Borders. In April 2002, the parties extended the Agreement to include the www.waldenbooks.com site as well. Cooper Decl. ¶ 16 Plaintiff generally alleges that the Agreement eliminates competition between two former rivals in the market for online sales of books and that consumers are therefore denied a competitive choice for their online book purchases. As discussed in detail below, plaintiff claims that two provisions of the Agreement are per se violations of the antitrust laws.

  Earlier in 2003 Defendants brought a motion to dismiss several counts of plaintiff's complaint. At the hearing on April 7, 2003 this court denied defendant's motion to dismiss without prejudice for renewal of it on a motion for summary judgment. See Hearing Transcript attached as Exh. A to the Declaration of Roy Katriel in support of Plaintiff's Opposition to Defendants' Motion for Summary Judgment ("Katriel Decl.") Defendants have now filed a motion for summary judgment and plaintiff has filed a Motion for Judgment on the Pleadings as to liability on counts II, IV, V, VI, and VII of the First Amended Complaint.

 LEGAL STANDARD

 A. Motion for Judgment on the Pleadings

  After all parties have submitted their pleadings, any party may invoke Federal Rule of Civil Procedure 12(c) and move for judgment on the pleadings as long as consideration of the motion does not delay trial. Page 5 Fed.R.Civ.P. 12(c). "Judgment on the pleadings is proper when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." Hal Roach Studios. Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989). The court accepts all allegations of the nonmoving party as true. Doleman v. Meiji Mut. Life Ins. Co., 727 F.2d 1480, 1482 (9th Cir. 1984). If the court reviews matters outside the pleadings, the motion is properly treated as a motion for summary judgment. Fed.R.Civ.P. 12(c). In deciding such a motion, the court may also consider facts that are properly the subject of judicial notice. Cf. MGIC Indem. Corp. v. Weismaa 803 F.2d 500, 504 (9th Cir. 1986). Interpretation of a contract is a purely legal question which is susceptible to a motion for judgment on the pleadings. Cf. Atel Financial Corp. v. Quaker Coal Co., 321 F.3d 924, 925-26 (9th Cir. 2003)(interpretation of a contract is a pure question of law).

  Defendants assert that plaintiff has not met the legal standard for judgment on the pleadings. A plaintiff is not entitled to judgment on the pleadings if the defendant's answer raises issues of fact or an affirmative defense, which, if proved, would defeat plaintiff's recovery. Owest Communications Corp. v. City of Berkeley. 208 F.R.D. 288, 291 (N.D. Cal. 2002)(plaintiff's motion on the pleadings can be granted only if all affirmative defenses raised in answer are legally insufficient). Both Borders and Amazon.com in their answers to the FAC, raised the affirmative defenses that plaintiff lacked standing and that he had suffered no antitrust injury. Plaintiff has not countered these defenses in his motion.

  In order to determine whether the plaintiff has "antitrust standing" the court must evaluate the plaintiff's harm, the alleged wrongdoing by the defendants and the relationship between them. Associated Gen. Contractors of California. Inc. v. California State Council of Carpenters. 459 U.S. 519. 5353 (1983): Knevelbaard Dairies v. Kraft Foods. Inc., 232 F.3d 979, 987 (9th Cir. 2000). As discussed below, plaintiff has made no showing that the alleged price-fixing, if analyzed pursuant to the rule of reason would in fact be detrimental to plaintiffs. On first blush it appears that section 4.3 of the Agreement would lead to lower prices available to consumers on the Borders.com website. Plaintiff has adduced no evidence that, but for Section 4.3 Amazon would have lowered its prices but did not do so because it would have been obligated to list the lower prices on both the Borders.com website and the Amazon.com website. In contrast, Amazon.com has introduced evidence that despite Section 4.3 of the Agreement, Amazon.com has lowered prices five times since July 2001. Kessel Decl. at ¶ 5; Zapolsky Decl. Exh. T. Page 6

  Nor has plaintiff demonstrated that he has suffered an "antitrust injury." Injury that flows from aspects of a defendant's conduct that are beneficial or neutral to competition is not "antitrust injury." MetroNet Servs. v. U.S. West. 325 F.3d 1086 (9th Cir. 2003); Rebel Oil. 51 F.3d at 1433. Where the defendant's conduct harms the plaintiff without adversely affecting competition generally, there is no antitrust injury. MetroNet Servs. 325 F.3d 1086; Pool Water Prods. v. Olin Corp., 258 F.3d 1024, 1034-36 (9th Cir. 2001).

  The court questions plaintiff's standing and whether plaintiff has suffered an "antitrust injury." Nonetheless, the court will analyze the claims presented.

 B. Motion for Summary Judgment

  Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial . . . since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett. 477 U.S. 317, 322-23 (1986); see also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'a 809 F.2d 626, 630 (9th Cir. 1987).

  The moving party bears the initial burden of Id. entifying those portions of the record which demonstrate the absence of a genuine issue of material fact. The burden then shifts to the nonmoving party to "go beyond the pleadings, and by [its] own affidavits, or by the `depositions, answers to interrogatories, or admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex. 477 U.S. at 324 (citations omitted); see also Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986)(a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party"). The moving party discharges its burden by showing that the nonmoving party has not disclosed the existence of any "significant probative evidence tending to support the complaint." First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253. 290 (1968).

  The court's function on a motion for summary judgment is not to make credibility determinations. See Andersoa 477 U.S. at 249. The inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. See T.W. Elec. Serv., 809 F.2d at 631. In an antitrust case, "if the factual context renders [plaintiff's] claim implausible — if the claim is one that simply makes no economic sense — [plaintiff] must come forward with more persuasive evidence to support Page 7 [his] claim than would otherwise be necessary." Matushita Electric Industrial Co., Ltd, v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Id. ea that Amazon and Borders are trying to maintain some artificially high price structure to the detriment of consumers is fairly ludicrous on its face as both the Amazon and Borders websites list numerous third party sellers of the same books Amazon and Borders are offering without any attempt to regulate the prices offered by these third parties and with the effect that these parties frequently offer lower prices than those of offered by Amazon. See Graham Decl. and related exhibits.

 C. Motion for a Continuance Under Federal Rule of Civil Procedure 56(f)

  Pursuant to Federal Rule of Civil Procedure 56(f), upon a showing by the party opposing a motion for summary judgment that it "cannot for reasons stated present by affidavit facts essential to justify the party's opposition," the court may deny or continue the motion for summary judgment in order to permit that party an opportunity to obtain necessary discovery. "Ordinarily, summary judgment should not be granted when there are relevant facts remaining to be discovered, but the party seeking a continuance bears the burden to show what specific facts it hopes to discover that will raise an issue of material fact." Continental Maritime v. Pacific Coast Metal Trades. 817 F.2d 1391, 1395 (9th Cir. 1987).

  A Rule 56(f) motion should be granted where the party opposing summary judgment makes a timely application that specifically Id. entifies relevant information to be discovered, and there is some basis for believing that such information actually exists. Visa Int'l Serv. Ass'n v. Bankcard Holders. 784 F.2d 1472, 1475 (9th Cir. 1986). Granting of such a motion is particularly appropriate where the Id. entified information is the subject of outstanding discovery requests. Id.

 DISCUSSION

 I. The Antitrust Claims: Alleged Per Se Violations

  Plaintiff's motion for judgment on the pleadings hinges primarily on interpretation of two provisions of the Agreement: one regarding prices and the other provision which limits Borders from engaging in other Page 8 online retailing pursuits during the time of the Mirror Site Hosting Agreement. Plaintiff asserts that both of these provisions independently constitute per se violations of 15 ...


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