Judge nixes part of Amazon, Borders suit

A federal judge calls a claim that the companies set artificially high prices "ludicrous on its face" but permits the case to go to trial.

Declan McCullagh Former Senior Writer

Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.

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Declan McCullagh

March 30, 2004 4:46 p.m. PT

2 min read

A federal judge in San Francisco has thrown out part of a class-action suit that claims that Amazon.com and Borders set artificially high prices for books ordered over the Internet.

However, U.S. District Judge Marilyn Hall Patel said in a ruling last week that the lawsuit could proceed, because she was worried about the possible anticompetitive impact of an April 2001 agreement, in which Amazon would run Borders' Web site and fulfill orders customers placed through it.

Patel said one section of the contract, which is similar to one Amazon inked for the online store of Toys "R" Us, is "troubling." A restriction prohibiting Borders from competing with Amazon means that "Borders could not even provide overstock books to another online marketer, even if there were no mention online that these books came from Borders," Patel said.

Schubert & Reed, the San Francisco-based law firm suing the two companies, said the contract is an example of an unlawful attempt to divvy up the market, a practice that's banned by federal and state antitrust laws and California's unfair competition law.

Schubert & Reed, which specializes in class actions and shareholder lawsuits, said its defendants have included 3M, Broadcom, Cisco Systems, Cylink (now SafeNet), DoubleClick, Macromedia, Network Solutions, PeopleSoft, Sony and Amazon (in an earlier case involving the privacy of Alexa Internet users). Its attorneys are demanding restitution for alleged overpayments made when shoppers purchased books from Amazon and Borders.

Patel permitted the case to proceed to trial, saying she had "insufficient evidence on this issue to make a determination at this time" about the contract's legality. But she did reject other claims that Schubert & Reed attorneys had made.

They had said Amazon and Borders were engaged in illegal price fixing, an argument Patel called "ludicrous on its face," because both Web sites list third-party sellers of the same books without any effort to control those prices.

Patel also used strong language at another point, suggesting that Schubert & Reed lawyers were trying her patience. "Plaintiff's claim that Borders.com was becoming a force to be reckoned with, based on its revenue growth rate, insults the court's intelligence," Patel wrote. "Firstly, the revenue growth rate declined dramatically from 289 percent in 1999 to 53.1 percent in 2000--at the same time that Borders.com's losses increased. Since Borders.com sold such a small relative number of books online, a large internal percentage increase does not correlate with a large increase in market share for online book sales."