First Published 2/23/02; Last Revision 2/24/02 10:01
REDACTED VERSION Filed pursuant to Order of
Judge Pauley dated February 8, 2002.
[redacted material indicated by xxxx's]
98 Civ. 5564 (WHP)
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THE INTIMATE BOOKSHOP, INC., Plaintiff,
-against-
BARNES & NOBLE, INC., et al., Defendants.
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PLAINTIFF'S MEMORANDUM OF LAW IN OPPOSITION
TO DEFENDANTS' JOINT SUMMARY JUDGMENT MOTION
This memorandum of law is submitted in opposition to defendants' ("Defts'") joint summary judgment motion. The action is vitally important to independent businesses in the U.S., smaller retail chains and to manufacturers because of the increasing inability of independents and smaller chain competitors such as KMart, Lechters, Woolworth and even B&N {Ex. R, Ex. S to Person Decl., hereinafter "V#5"] to compete with larger retailers (i.e., Wal-Mart) which demand and get substantially higher effective discounts. Without a level playing field, built on compliance with the Robinson-Patman Act ("RPA"), most retailing will be done by Wal-Mart, most manufacturing will be done outside the U.S., and business, political and social opportunities in the U.S. will be lost, similar to what happened to Intimate. Also, accounting to hide violations of the RPA by Defts and others has resulted in materially misleading financial statements, which reward the violators, and penalize their competitors (see Enron articles, V#5 E and V).
PRELIMINARY STATEMENT
Main, Recurrent Issue: Discrimination occurs throughout all of Defts' book purchasing transactions, but Defts try to legalize the discrimination by "meeting competition" letters with every Publisher. But the letters disclose no "price" or "discount" being met (because Defts and the Publishers do not know the effective discounts at which they are selling to any of the Defts, and the Defts do not know the effective discounts at which they are buying books from any of the Publishers). The meeting competition letters are not limited to any specific competing book titles but are used to justify higher effective discounts across all of the Publishers' titles. Defts make demands for higher effective discounts without knowing their major competitors are paying or what Defts themselves are paying. Defts' RDC terms are negotiated with the Publishers and do not ever appear in the Red Book for independents to see, request or obtain [DV#7 O'Donnell 49]. Defts' Wagner exhibit shows that RDC discounts were not published in the Red Book until after 1997 (Pltfs' R56.1 pp15-21), but defendants were creating and enjoying the RDC, RC and freight payments starting years prior to 1993.
Failure to Acknowledge or Review Evidence
Defts assert "there is no evidence of a violation by any Defendant" (Deft. Mem. 1) but fail to disclose or review any of the 100,000's of documents they produced in 30+ CD Roms and 100 boxes proving otherwise. Defts argue that the "Kuralt[s] unabashedly acknowledge that they rely on nothing more [than] their 'beliefs' and the 'beliefs' of other booksellers about what Defts supposedly knew (Deft. Mem. 5 & n. 5-6) without disclosing Defts designated their evidence "highly confidential" to keep it away from the Kuralts, and Defts forced Intimate to detail and prove Defts' activities not in dispute (see e.g. CV#4 exhibits). Defts make false statements such as "there is no evidence" (Deft. Mem. 6, 11) and "[Intimate] has not compared the prices that it paid to any publisher ... with the prices paid by each of the Defts" (Deft. Mem. 8) while refusing to lay out the voluminous existing uncontested evidence produced by them, in what amounts to improper, misleading and false argument. Due to Defts' evidentiary failure, Defts' motion does not raise any issues whatsoever. Adickes v. Kress, 398 U.S. 144 (1970); and Embrey v. United States, 17 Cl. Ct. 617; 1989 U.S. Cl. Ct. LEXIS 135 (U.S. Ct. Claims 1989) (movant has the obligation to show absence of evidence to support non-movant's case). Movants cannot accomplish this by disregarding, concealing and refusing to discuss the evidence. Defts spent about $75,000,000 in the ABA action (V#5 W), while the ABA spent an admitted $18,000,000 (Id.). Defts' tactics of moving herein without disclosing the facts has substantially increased Intimate's costs, and has substantially diverted Intimate from focusing on the disputed issues -- obviously Defts' intent. Enforcement of the RPA by independents is too costly and therefore prohibitive if these tactics are condoned.
Brief Summary of Facts
From 1994 to now, the Defts have been obtaining a variety of discriminatory discounts, rebates, allowances and other benefits from the Publishers listed in <188> 35 of the complaint, including (i) an additional Regional Distribution Center ("RDC") discount ranging from 1%-4%; (ii) a 1% Return Center ("RC") fee through the RDC; (iii) a 4% to 8% co-op allowance on last-year's net purchases involving no costs to Defts and no proof of expenditure; (iv) systematic non-payment of invoices, called "Deductions") amounting to a substantial reduction of Publishers' invoices; (v) full credit for worthless books in excessive quantities through Publishers' return policies for Defts, amounting to free books for Defts; (vi) deferred payment of invoices beyond published terms; (vii) failure to stop shipments for non-payment of Publishers' invoices to Defts; (viii) maximum (flat) discount for ordering of single or few copies; and (ix) special-deal and shared-markdown books at higher discounts.
Defts did not dispute these allegations in their summary judgment motion in the ABA action, and do not dispute them in their present motion papers. American Booksellers Ass'n v. Barnes & Noble, Inc., 135 F. Supp. 2d 1031, 1043, 2001 U.S. Dist. LEXIS 3219 (N.D. CA 2001).
Intimate, on the other hand, obtained none of these discounts, payments, terms or other benefits {V#1 WKuralt 9, 31 and V#1 BKuralt 4, 55}, and obtained only the published Red Book discount {V#1 WKuralt 31, V#1 BKuralt 55}, with Publishers refusing to ship further books to Intimate for any non-payment of the Publishers' invoices {V#1 BKuralt 5}. With these extra discounts, payments and other valuable benefits, Defts were obtaining an effective discount not less than 60% (up to 70%), whereas Intimate was receiving the normal published (Red Book) discount of 40% to 46% (averaging 42%). With these higher discounts, Defts were able to and did offer higher discounts, pay for more advertising, offer better facilities, use more expensive, better and larger locations, and offer a larger selection of book titles, to attract customers away from Intimate {V#1 WKuralt 14-15 and V#1 Customer Declarations} and caused Intimate to incur additional costs to meet Defts' competitive threat.
Intimate has been damaged by incurring expenses as consequences of Defts' violations of <185> 2(f) of the RPA, and Intimate's business was destroyed by reason of such unlawful competition. Intimate offers proof of such elements of damages through declarations by Intimate's primary stockholder/C.E.O. {V#1 WKuralt 49 and Expert Report p. 72-88}, and through a variety of other experts. See {V#1} for the declarations and expert reports of Intimate's experts, and supporting declarations of many of Intimate's former customers.
References to exhibits are enclosed in "( )" for Borders; "[ ]" for B&N, and "{ }" for mixed or other, with numbered exhibits being found in CV#4. Thus, "[V#1 WKuralt 86]", e.g., means that deposition or declaration testimony of Wallace Kuralt at page or <188> 86 is in Volume # 1.
Defendants Knew or Should Have Known
Defts and the 14 Publishers were aware that Defts were continually requesting additional fees, discounts, rebates, allowances, payments, invoice cancellations and reductions, and other benefits not available to Intimate (009). B&N heard charges that it was getting higher discounts and putting independents out of business, but did not investigate the charges [DV#7 Bostelman 130-3]. Defts were being requested by the Publishers to provide evidence that that at least one of the Publishers' competitors was providing such term to Deft (004), without looking at the price of any of the Publishers involved or the price paid by any competitors {CDV#8 Balog 34-36; CDV#8 Kelly 16-18; CV#4 Naggar 7; CDV#8 Hertz 11; DV#7 Flanagan 39-41, 50-59; DV#7 O'Donnell 13, 23-25, 47-48, 50-52, 56}. While opening new superstores (089), Defts closed some of their smaller stores because of their inability to compete (088). Defts knew from Red Book terms [CDV#3 Bostelman 133] that Intimate had to prove actual payment of advertising expenses to ultimately obtain co-op advertising reimbursement while calculating for themselves that Defts were paying out only 16% and keeping 84% of all co-op money they received from Publishers (092-093, 097, 105, 108, 109p2). Defts were aggressively negotiating co-op allocations with Publishers (DV#7 Flanagan 19, 51, 64-65, 88-89, 106-107) and pushing co-op funds away from actual advertising into end-cap and other in-store "placement" programs (095). There were special promotion deals for Defts only (096). Defts constantly pushed Publishers with new theories for payments (V#5 O, CDV#8 Kelly 25), based on discriminatory benefits Borders received from other Publishers (DV#7 Flanagan 58) and without knowing if any of Borders' competitors received such benefits (DV#7 Flanagan 54, 56-59; DV#7 O'Donnell 25, 47-48). Borders signed confidentiality agreements with Publishers to keep the discriminatory discount secret (125). Defendant Borders' employees see different rates being given by Publishers to Borders and Walden (126, 239p1, 248p1). Defts compare different components of Publishers' prices (248) and put upward pressure on each component, instead of looking at the overall price [see highlighted ref. p. 4 above}. Defts put pressure or implied threats on Publishers to obtain whatever discriminatory benefits Borders (187, 188, 252) [192] is seeking:
"We demand Houghton Mifflin recognize the efficiency and profitability of the Borders account through purchasing terms that reflect the added value we provide. If Houghton is unable to meet the discount standards established by your competitors as detailed above, we will be forced to minimize our support of your titles." (188p1)
H-M responded B&N several weeks later by giving in to Borders' demands (188p2) even though the "demands" do not benefit H-M (187). B&N threatens similarly [171, 172, 177 - 2nd letter: "Failure to respond in kind could, as we discussed, place you in a potentially injurious position"; 192 - same; and 252 - "RH's panic about our payment deductions. I think we have a negotiating opportunity here"] (DV#7 Flanagan 46-47), and rejects Publishers' newly-published terms and use other terms without the Publisher's consent [146]. Defts had "negotiating teams" to regularly request and obtain additional discriminatory terms [174, 178] (DV#7 Flanagan 51, 88-89) and had such extensive negotiations and agreements [183] that Defts started referring to the Publishers as "partners" (122, ranking HC as the easiest as to coop) [175, 163 RH, 267 BDD], marketing programs not available to Intimate or other independents {V#1 WKuralt 31}. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx Defts attempted to induce Publishers to make regular payments to Defts for services for which no Publisher ever gave compensation to any bookseller [177], which were not published in the Red Book (DV#7 Flanagan 56-57; DV#7 O'Donnell 41). Defts were in the business of inducing Publishers to give Defts better terms, across the board, as to all of the Publishers' terms, which were non-negotiable as to Intimate [183]. Even the largest Publisher (RH) is clearly subordinate to Defts (212) and has to get Defts' permission to discontinue one of the terms (216), being unable to resist Defts' demands. Even industry analysts understand that Defts' "purchasing volume ... provide[s] an advantage in negotiating with suppliers" [V#5 L]. B&N proclaimed in its 1/31/98 10-K "Barnes & Noble's buyers negotiate terms, discounts and cooperative advertising allowances with publishers for all of the Company's bookstores" [V#5 F p12], admitting it does not purchase at the published terms. Forbes referred to bullying of suppliers as "being squeezed by discount chains like Wal-Mart" {V#5 O}. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (219). Defts induce any one Publisher to be the first to make a new or increased category of payment to Defts, then push each Publisher in turn to pay the same amount (222), which some do and some do not (223p6). Publishers Weekly recognizes that co-op advertising has become a "profit center" for Defts [while independents are required by Red Book terms to prove actual expenses to try to get cooperative reimbursement]; that independents often do not use co-op funds because "many publishers' policies [are too] complicated to fill [and] their verification requirements can be onerous"; and that "some publishers admitted privately that they would go broke if every bookseller demanded to use all their co-op money" {V#5 P}. Even today, while lying to the press ["Because of the court cases, for the last seven years, we haven't even spoken to publishers about terms"] [V#5 R p1], B&N's CEO Leonard Riggio told industry analysts during November, 2001 "that B&N might take unspecified "decisive actions" to "persuade our suppliers to be fair to us", possibly as soon as early 2002 [V#5 R, S]. Publishers Weekly told the industry that Riggio was threatening action (in 2002) against the book publishers [V#5 S]. Specifically, Riggio was complaining that// Wal-Mart, which stocks fewer titles and has higher returns, is getting a higher discount from book publishers [V#5 R p2]. Industry analysts expected the ABA case "would help free Barnes & Noble to use its market power to win lower prices from publishers" [V#5 R p2], and indicated that it sounded like Riggio was threatening book publishers [V#5 R p1,3]. New York magazine 7/19/99 states {see V#5 U p 27}:
the bad Len Riggio, bludgeoning publishers, strangling independent bookstores * * * accused of breaking antitrust laws, closing down thousands of independent bookstores, bullying publishers, and flattening the literary landscape * * * "Despite B&N's argument that its superstores have expanded the market for books, the number of copies of adult trade books sold in the U.S. has grown in the past ten years at a rate of less than one percent annually. During that time, the number of Barnes & Noble superstores has grown from a handful to more than 500, tripling the amount of shelf space devoted to selling books in some markets. Unlike mall chains, B&N and its rival Borders invaded the urban centers and college towns - the independents' turf - and small stores folded in droves. Membership in the independent stores' ABA fell from 5,500 in 1994 to 3,400 in 1999.
Defts hid their gross profit margins from public scrutiny by including store rental expense as a cost of goods (231), and did not reduce book costs by the amount of co-op end-cap and other display rebates, e.g. {DV#7 Bostelman 35-36, 122-125] (DV#7 Flanagan 16-17) but reported decreased advertising expenses instead (DV#7 Flanagan 16-17); and gave no warning to investors about this resulting misleading statement of profit margins and advertising expenses {see current Enron problem equally applicable to Defts (V#5 V) "Without the accounting tricks, the company is not such a dynamo in its core business"}. HM was aware that its co-op chargeback to B&N restored HM's margin [263]. Borders took incentive credit from RH knowing it should not have been granted (236). Borders tells RH that B&N is Borders' "single most ruthless competitor" (244). Defts kept no records on the profitability of their dealings with major Publishers (DV#7 Flanagan 114-115; DV#7 O'Donnell 44-45). Defts evaluated the impact of each term (190; DV#7 O'Donnell 35), but did not use effective cost when demanding additional benefits from Publishers. The Publishers did not know the profitability or cost of their dealings with Defts {DCV#8 Kelly 16-18; CV#4 Naggar 7; DCV#8 Hertz 11}. Substantial additional evidence described below helps to prove Defts knew and/or induced discriminatory discounts, including but not limited to Defts' deductions practices, delayed invoice payment practices, cost-imposing excessive return rates, the size of Defts' effective discounts, seeing its competitors and own stores go out of business, and the failure to compute the effective discounts at which Defts were buying books from the Publishers [DV#7 Bostelman 35-36, 122-125]. Also, Defts acquired independent bookstores and were familiar with their records (DV#7 Flanagan 112-113) [DV#7 Bostelman 77-78]. The 14 Publishers Have Been Giving Defendants Discounts, Payments, Rebates, Fees, Allowances, Terms and Other Benefits Not Provided, Offered or Made Available to Intimate The effective discount at which Defts have been buying books from Defts is not derived from any packing slip or invoice[DV#7 Bostelman 35-36, 122-125] (DV#7 Flanagan 14-17). Instead, it can only be determined by reference to many tens of thousands of transactions each year, only one of which would bear an invoice number for a specific purchase of books by a Deft (CV#4 Naggar 5). The RDC discount for Defts is 48% or 49% for most Publishers, and ranging from 47% to 51% for hardcover books (197, CDV#8 Kelly 11), and xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxx (206p2) and 1-4% RDC discount (DV#7 Flanagan 75). The dropship discount (i.e., shipments by Publishers direct to bookstores) ranges from 46-50% with most publishers charging freight to the bookstore (129). See a variety of additional documents to such effect (198)[278 RH RDC, 280]. Intimate averaged 42% while Defts averaged from 45.9% to 48% in 1995-96; 46.1% to 48% in 1996-97; and 46.9% to 48% in 1997-98 {CV#4 Naggar 4} without taking deductions, coop advertising, extended credit, freight, and other discriminatory fees, rebates and services into account. But Intimate could and did calculate its discount from the Publisher's invoice for books shipped to Intimate {V#1 BKuralt 4, 55}. The invoice would say, e.g., 50 copies of a specified title, and the actual discount at which Intimate purchased the book would be set forth, e.g., 44%, 45% or 46%. No other transactions between Intimate and the Publisher lowered or increased the stated discount {V#1 WKuralt 31, V#1 BKuralt 55}. The tens of thousands of yearly transactions which gave Defts a lower effective discount and constitute something akin to a complicated "DNA Code" to unravel how much Defts are actually paying for books {V#1 WKuralt 33-34}, and hide the rate from regulators, bookselling competitors, stock analysts, other Publishers, plaintiffs, plaintiffs' attorneys, and of course judges and juries):1 Defts recognize in their Publishers' "Terms" profiles that there are a bundle of provisions constituting the terms from a single Publisher [DV#7 Bostelman 53-57], including RDC, dropship and Wholesale discount, returnability, payment terms, freight terms, freight author appearances, special offers, incentives, statistical reserves [269], but Defts do not compute the net
[start footnote]
________________________
1. Plaintiff believes that use of such "DNA Code" to hide effective discounts eliminate any defense of cost justification, because costs are effectively non-calculable, and therefore "cost justification" and "meeting competition" cannot be demonstrated, which eliminates any cost-justification or meeting-competition defense. See V#1 WKuralt Exp. Rpt. pp. 51-53 for partial list of DNA elements and 55-65 and 71 for reasons why and expert opinion that RDC fees to Defts are not cost justified.// [end of page and end of footnote] LTA, cash discount, returns discount or penalty, co-op advertising (direct and indirect), new store allowance, price of books from any of the Publishers when demanding additional concessions from the Publishers {see highlighted ref. p. 4}[DV#7 Bostelman 35-36, 122-125]. See "Meeting Competition" below.
Advertising and Promotion
Within "Advertising and Promotion", there are discriminatory Discounts and Rebates: advertising and promotional allowances without accountability (i.e., without proof of expenditure) (036, 042, 053, 100, 102-103, 105, 109p5) [105a] [DV#7 Bostelman 28-29] (DV#7 Flanagan 66); using Defts' own contract forms with terms and penalty provisions for Defts (001-003, 101, 260 - with S&S providing counter co-op form; 275 - Purchase Order provisions); display allowances (001-003, 103, 105) for "displaying" a Publisher's books in the Defts' stores (called end-cap allowances (037, 052, 054-060, 063-064, 073, 094, 104) {CDV#8 Balog 64-66; CDV#8 Kelly 18-19}, rack or pocket allowances [155, 164, 180, 181], display allowances (031, 034-035, 039, 040), table allowances (033), placement allowances, catalogs (032)), including payment for rental of non-specified floor space in Defts' retail stores for display of books (similar to a slotting allowance) [180-181, DV#7 Bostelman 93-94]; setting up and paying for (279) author's appearances, and giving extra discounts to Defts for the author's books; providing co-op advertising money exceeding Defts' costs for such advertising; allowing Defts to spend co-op (pooled) advertising allowances for books and in geographic areas not creating the allowance [DV#7 Bostelman 20-24] {CDV#8 Balog 61-62} (DV#7 Flanagan 22-23); giving additional discounts to Defts on convention book orders; new-store "grand opening" allowances and benefits (105); providing promotional payments upon Defts' request and/or Publishers' whim {CDV#8 Balog 69}. The totality of these amounts is substantial. Borders policy is to convert co-op advertising to non-cost in-house programs (078) such as end-cap, pocket and other display allowances, for which Defts' actual expense was negligible (092-093, 097) {CDV#8 Balog 64-66}.
Defts "negotiate" co-op payments [DV#7 Bostelman 13-14] instead of qualifying under Red Book programs (085<188><188> 6, 13, 249; DV#7 Flanagan 19, 64-65, 106-107) and even promise not to carry a competing line of books (e.g., Idiot line) if Dummies' Publisher gives additional discounts and co-op advertising allowance requested by Defts (085<188>22). Defts' co-op money was not expense reimbursement (DV#7 Flanagan 102).
˙Defts recognize they have the market power to "effectively eliminate" a publisher (competing for sales to Defts) by this practice and intend to do so (085 <188>22). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (094).//
Defts used co-op advertising for TV, newspapers, direct mail and in-house display programs as a profit center with profit margins on the co-op revenues they received (097, 108, 109p2, 120, 250p1 "placement"). Defts' profit margin on end-cap allowances, racks, pocket allowances and other display co-op "advertising" is 100%, because Defts incur no expenses [CDV#8 Balog 64-66]. B&N sees in-store placement as a 1998 major marketing opportunity [268]. Also, Defts sometimes fail to put up the promised displays [162], and BDD caught Borders "red handed" failing to put up the promised co-op displays (243). xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx {CDV#8 Balog 96}.
B&N's co-op advertising revenue from all publishers during 1997 was $113,217,602 - 1st Q; $98,420,836 - 2nd Q; $173,627,547 - 4th Q [152]. Also, see (250).
Credit - Delayed Payment of Invoices
Defts take advantage of the Publisher by paying invoices many weeks and months after Intimate was required to pay invoices (017, 021, 023-027, 029, 044-045, 047-049, 051, 074, 077, 129, 226-227) {CDV#8 Balog 32-35, 73-74}, which enabled Defts to purchase books without any investment. Most major Publishers do not object to Defts' delayed payments and accept the delays as long-established terms (134, 226). LB resisted this practice {CDV#8 Balog 73-74}(228).˙Defts calculated that the additional time they took to pay invoices was equal to a discount of 1% for a calculated period, or that Defts saved interest at the rate of 6.5% as to the deferred period (081, 190). Defts analyzed the cost of vendor's payment terms by calculation of an "interest expense benefit" for deferred payment (205) (DV#7 O'Donnell 61-62). The ability to buy books without paying for them allowed Defts to open up more bookstores, and larger bookstores, because the inventory costs were paid by the Publisher. Often, long after the books were sold to retail customers, or returned for full credit (plus 1% RC fee) to the Publishers {CDV#8 Balog 50-51(CV#4 Naggar 4), Defts paid the Publisher for the books (although in a lesser amount than represented by the invoices - see Deductions below). Intimate was constrained by financial considerations imposed by the Publishers (and Intimate's sound business practices and supporting data system) to order books which Intimate would actually pay for, before selling or returning the books. Without such limitation, Defts imposed severe costs on the Publishers (without the Publishers taking such costs into account when providing Defts with the foregoing discriminatory discounts, rebates, allowances, payments and other benefits) by ordering more books than Defts could ever sell, and returning the books to the Publishers instead of paying for them. Of course, the returned books were virtually// worthless by this time (including any damage done by customer reading in the stores), with the Publishers having to remainder them {V#1 WKuralt 54, 57-59, V#1 BKuralt 36-39}. Defts, on the other hand, received a credit for more than 100% of their purchase price upon return of the books. (See "Returns" below.) Smaller publishers (unlike major Publishers except LB) did put shipments to Defts on hold for Defts' non-payment of invoices (072, 076). Four days' delay in paying all Publishers is worth $330,000 to Borders (124). An added 30-day in dating terms is not worth as much as a 1% cash discount to Borders (135). Borders recognized that B&N was getting or taking more favorable terms from Publishers than Borders (234), and are penalized $2,200,000 per year as a result (234).
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Deductions (Agreed upon Reductions of Invoice Amounts)
The most valuable discriminatory practice (049, 228) is having Defts' personnel claim thousands of shipping violations and then refuse to pay the Publishers' invoices to the extent of such extravagant claims (051-052). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Whereas Intimate was not able to renegotiate invoices {V#1 WKuralt 9, 31, V#1 BKuralt 4,53-55}, and would have its shipments stopped by the Publisher if the invoices were not paid {V#1 WKuralt 9, 31, V#1 BKuralt 4, 53-55}, Defts' procedure was to make shipping-related claims against unpaid invoices and pay only the "undisputed" amount, and then over the following year, two or three settle the non-paid amount often for as much as 50% of the dispute (008,016, 018-020, 022-028, 030, 046, 048, 061-062, 065-067, 075) [168, 185, 232], and with no reimbursement to the Publisher for interest during the// payment delay. Also, Defts returned the overstocked books long after they should have been paid for, and took credits against the unpaid invoices for such returns (119, 240), and even took the deduction in anticipation of returning huge amounts of books (240), being careful to avoid doing this the following year as to certain major Publishers (240). Also, Defts improperly took credit for belated return of out-of-print books [166]. Defts continually fail to follow Publishers' conditions for co-op advertising, file improper claims, and create additional deductions opportunities [167]. With the extravagant deductions by Defts (permitted by Publishers only for Defts, and not for Intimate - V#1 WKuralt 9, 31 and V#1 BKuralt 4, 53-55) and the book returns (119), and the delays in paying invoices (228), Defts routinely took $5,000,000 invoices and paid $1 or $50 or $100 to the Publishers, whereas Intimate always had to pay the full amount {V#1 WKuralt 9, 31, V#1 BKuralt 4, 53-55}.
Also, Defts imposed conditions on the Publishers concerning their shipments to Defts (type of box, labeling requirements, packaging requirements, invoice and label), and issued penalties to the Publishers for failing to abide by Defts' unilaterally-imposed shipping rules (098, 233) [170, 172, 173].
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Discounts
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (138). Defts obtained a variety of discounts not enjoyed by Intimate {V#1 WKuralt 31}, even when Intimate purchased in carton quantities {V#1 WKuralt 37}. Carton-quantity purchases gave booksellers the highest discount, and Intimate frequently bought in carton quantities {V#1 WKuralt 37}, and obtained discounts of 45% from most Publishers {V#1 WKuralt 37}. But Defts obtained an additional 2% RDC discount (see "Regional Distribution Center RDC Discount" below), and a 1% freight allowance for shipments to the RDC// (see "Freight below"), and a 1% fee for making returns through a Return Center ("RC"), thereby receiving a credit of 1% more than Defts' purchase price for books returned to Publishers (which books in many instances were virtually worthless) {V#5 T p39-40 "by the time [the returned book] gets back to the publishing house, [it] has lost most of its value"}; Penguin argued the 1% RC fee was already included in the RDC fee (251). Publishers kept track of Defts' returns, and adjusted a "flat return discount" or "blended discount" based on Defts' returns percentage (202, 203p7) {CV#4 Naggar 4}, but did not take the returns percentage into account when determining the costs of doing business with Defts, in calculating RDC and RC costs, or in determining dropshipment costs. Also, Defts' Cox Report did not use the costs of any specific Publisher
Also, Defts obtained free books from Publishers from time to time (112) [163]. Publishers permitted Defts to take some fees or allowances off invoice [DV#7 Bostelman 62-63], instead of waiting for a credit to be generated, as Intimate was required to wait {V#1 WKuralt 31}. The Publishers and wholesalers provided Defts with volume rebates based on increased annual purchases (086). Also, Defts get additional Publisher discounts and/or delayed payment terms upon opening of new bookstores (117, 133, 140, 203p8) and for store expansion or relocation (203p9).
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx and Penguin gave Borders $1.4 to $1.9 million in cash discounts not available to others (obtained through special negotiations, and made final by settlement in 1998) (241). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (207). The extent of Borders' deductions caused RH to "panic" (242), and offer Borders additional shared markdowns (242). Another discounting practice by the Publishers is to "remainder" books at high discounts to favorite chains, without making the books available to competing booksellers (244-245). Also, Defts obtained highest discounts on 100% of purchases regardless of quantities of title involved (276). Also, see pp. 4-7 above.
Freight
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx˙ Defts have imposed detailed// shipping rules on Publishers (209) pursuant to which Defts create chargebacks (i.e., deductions from Publishers' invoices) for "vendor violations" thereof (098, 209) [170, 173]. Also, Defts are obtaining early book shipments to Defts to enable Defts to get new books to their retail stores at the same time as the Publisher's direct (drop) shipment to competing bookstores (098, 107, 208) (274, 14 days early required), a benefit sought by Borders (196). Defts' bookstore personnel cannot get new books out on the floor on a timely basis (201) {V#1 WKuralt 54, 57-59} [DV#7 Bostelman 70-72]. xxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (237) or 1-2% for B&N [DV#7 Bostelman 109]. RDC's took a longer time to get books to retail stores than Publisher drop shipments (DV#7 Flanagan 70-71).
Regional Distribution Center ("DC" or "RDC")
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The publishers set forth requirements generally for RDC's making it possible only for the major book-selling chains to obtain the additional 2% (RDC) discount, and related 1% RC fee (see "Return Center" below.) These requirements were usually four in number, as follows: (i) ordering in carton quantities for a specific title; (ii) having a separate warehouse not part of a bookstore; (iii) having a docking area where large trucks could unload pallets; and (iv) usually having a minimum number of bookstores being serviced by a single RDC (006) {CDV#8 Kelly 11-13}.
Intimate met all 4 requirements (but was never offered or given a RDC or RC discount) {V#1 WKuralt 37-41}. A non-discriminatory policy by the Publishers would have been to eliminate the 2nd (separate warehouse) and 4th requirements (at least 5 bookstores), and charging an additional fee for shipments where there was no docking facility {V#1 WKuralt 41}. But instead of doing this, the Publishers created a 2% RDC discount and related 1% RC fee only for Defts (and other major bookstore chains, such as Books-a-Million - "BAM"). Publishers (e.g., Penguin and S&S) did not require Defts to buy in carton quantities, in spite of the published conditions (004, 211, 220, 238), which exception was requested by Borders (194) and Morrow and Avon did not require carton purchases (090). Borders always achieved a "flat" RDC discount, not dependent on the quantity of books ordered (255); also Defts sought and obtained lower carton quantities on initial frontlist orders (10 copies) , to reduce drop shipments, which "will have a material impact on 1998 returns" (256). Thus, Defts obtained a 50% discount on small orders while Intimate was getting a discount// of only 20-40% for small orders {see Red Book terms in Discounts Volume}. Defts obtain early shipment of books by Publishers because the use of RDC's results in delays upon reshipping new books to Defts' retail stores (099, 107), thereby imposing additional costs and discriminatory services on the Publishers over and above the RDC 2% fee. The RDC's are not effective for Defts and need improvements (116) [DV#7 Bostelman 70-72]. RDC's are taking 8 days to get books to retail stores (132, 139). xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (136). Borders has no idea in 1995 of its RDC costs (139). Defts' own shippers (costing less) are causing some of the shipping delays and problems (215). Defts' RDC and RC analyses for negotiating purpose are made from Defts' standpoint (additional revenue), not the Publishers' standpoint (cost savings) (223). RDC discounts are negotiated, sometimes "This is a nasty negotiation process...dragging out for a year" (280p3). Price negotiations are an established element of determining effective price (DV#7 Flanagan 19, 51, 54-65, 88-89).
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The RDC's and RDC/RC fees are no more than extra compensation to Defts for failing to employ skilled employees at their bookstores and data systems to do the work done by independents at their bookstores {V#1 WKuralt 54-60} and (254).
Return Center ("RC")
Some of the Publishers gave Defts a 1% additional fee for making book returns from a single center (004, 086<188>C, 142), but did not offer this 1% fee to Intimate {V#1 WKuralt 9, 31, V#1 BKuralt 4, 54-55}. It was provided only to RDC's {CDV#8 Balog 39-42}, and not to bookstore chains (such as Intimate) which was not offered or given any RDC discount {CDV#8 Balog 39-42}. The 1% additional credit for book returns made through a RDC/RC amounted to a $.25 payment per book (1% of the average retail price of $25). The fee for returning unsold books often exceeded the value of the books to the Publisher upon their return and was not justified by any cost saving to the Publisher. The fee did not appear on book invoices, and was credited by periodic letter to Defts (222p1-2). H-M told Borders (187): "we find that receiving returns from your warehouse less time efficient and more costly than receiving returns directly from stores. It is therefore very difficult for us to justify an additional increase to our costs when the new system does not benefit us."
Returns//
Defts charged 1% to Publishers which did not approve a 1% Return Center ("RC") fee, and deducted the charge from the Publisher's invoices (084). Defts plan to charge Publishers for returns prior to actual RC shipments of returned books to Publishers, to add $2,500,000 in interest income (118). St. Martins refused to pay a 1% RC return fee saying that the RDC 2% fee was supposed to cover returns through the RDC (087). Defts returned books which were damaged for full credit, contrary to Publishers' policies; Defts returned books to Publishers and took deductions from outstanding invoices without waiting for Publishers to issue a credit for all or part of the claimed deductions (119); Defts ordered more books than they could sell and returned books to the Publishers to the extent of about 4-5 times the average return rate of Intimate {V#1 BKuralt 7} and other independent booksellers (007, 083, 085<188>19, 106, 221) [157], 39% as to RH in 1966 (204) and Waldenbooks 34-41% in 1995 and 37% as to S&S in 1995 (221), at a cost to the Publishers which made their financial relationship with Defts unprofitable (when taking all other benefits into account). The Publisher's (manufacturing) cost for a book, according to B&N's Steve Riggio, is 10% of the retail price of the book [148]. Also, Defts imposed conditions on the Publishers concerning Defts' returns, and issued penalties to the Publishers for failing to abide by these conditions set by Defts, called "vendor violations" (098). Defts' return rate is a cost to Publishers (106). See (239) for Waldenbook statistics for fiscal 1994 as to the top 14 vendors.
In 1997, no major Publisher imposed a penalty for high returns, except Putnam until 1996 (252, 253). Also, the Publishers gave Defts a retail incentive plan (123, 213) which gave additional compensation to the Defts if they kept their return rate down to a defined level.
Also, the Publishers gave Defts a statistical reserve allowance (038, 041, 043, 050) [168 RH, Peng, LB, SS, HC, BDD, SMP, MH, HM] to enable returns to be made without claims and deductions. Defts were overstocked with excess titles (071) and started reducing the number of titles and overall inventory of books by 20% or more (12,000 titles) after Intimate and other independent bookstores closed.
Also, Publishers gave Defts special discounts and other benefits for returning books upon store closings. Defts recognized their return rate was a problem (070-071, 213). LB increased the size of its warehouse {CDV#8 Balog 93-95}. Many of the returned books are worthless to the Publisher, by reason of damage or lack of demand (087) {V#1 WKuralt 54-60, V#1 BKuralt 35-41}. Also, Defts returned non-returnable books to Publishers to create an opportunity to take inappropriate deductions, and later compromise (119), to reduce their unpaid invoices.
Special Deals, Stock Offers, Markdowns
There were many special deals, stock offers and markdowns offered to the industry, either by advertisements in Publishers Weekly, or by flyers received from the Publishers, or by Publishers' salesmen who alerted Intimate and other independent booksellers to available special deals, stock offers and markdowns. These industry-wide offers were limited to one order per customer (082, 121), but Defts were allowed multiple orders, thereby not requiring Defts to make a purchase of the special offers until they had tested, and continued to test, the saleability of the reduced books, whereas Intimate had to invest its money and take its chances {V#1 WKuralt 31}.
There were many other special deals, stock offers and markdowns given by the 14 Publishers only to Defts (096, 195) [273], and not to Intimate {V#1 WKuralt 31, V#1 BKuralt 5-6} or any other independent booksellers (079). These amounted to a significant part of Defts' discriminatory discount. For example, S&S back list promotion gave Defts a 3% discount (080). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (214, 242). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx˙ Intimate never received any offers for shared markdowns or markdowns in place {V#1 WKuralt 31; V#1 BKuralt 5-6}. Also, Publishers gave special deals to Defts in the form of additional display allowances and additional discounts [270, 186] (DV#7 Flanagan 101).
In Summary
In summary, the Publishers had about 100 different ways to get additional (or "shovel") money to the Defts beyond the basic discount at which Intimate purchased books from the Publishers. None of these 100 different ways were available or even known to Intimate {V#1 WKuralt 9, 31, V#1 BKuralt 4, 53-55} until 1995, and they were not capable of being detected from a review of Defts' book-purchase invoices [DV#7 Bostelman 122-125]. These amounts were hidden and enabled Leonard Riggio, C.E.O. of B&N, to proclaim publicly in his 4/20/95 letter to a newspaper [147] independent bookseller "Tattered Cover buys books at substantially the same prices we do.... We can prove these points!. We'll even show you the sliding scale discounts from the publishers...." Of course, this statement was untrue. Defts were getting an effective discount of about 60%, when Intimate {V#1 BKuralt 3}and Tattered Cover were getting only 42% (average). The effect of these 100 ways of throwing money at Defts was to give Defts the added money or opportunity to have more// inventory (especially since Defts had no investment in the inventory, as discussed above), higher discounts to customers, better bookstore locations, better and no-cost parking for customers, free bathrooms, free reading of books and magazines, areas for public meetings with authors, areas for sitting down and relaxing while reading a book which the "customer" did not intend to buy, which book would probably be shipped back to the Publisher in damaged condition for a return of 100% of the purchase price (as listed in the invoice) plus 1% of the retail price of the book. Also, it purchased more promotional and advertising activity for the Defts, to enable Defts, with all of these extras, to wipe out Intimate and thousands of other independent booksellers. Defts knew these practices hurt Independents but did nothing to investigate [DV#7 Bostelman 130-133].
Other Components Making up Defendant's Effective Discount
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (141, 193, 198); data processing ordering [DV#7 Bostelman 99]; "gathering" fees or allowances paid by Publishers to have sales meetings with Defts (068). Defts knew that their superstores took sales away from smaller stores such as Intimate (069), and that smaller bookstores were not able to compete effectively with Defts' (or BAM) superstores (069).
Also, Defts' periodic structured meetings with Publishers and wholesalers to which Intimate and other independent booksellers were not invited, to obtain additional benefits from the Publishers (191, 210, 217) [178, 263, 265, 266, 272] and SS/Borders "partnership" (257) and RH/Borders meetings with wide-ranging benefits for Borders being advocated by Borders (258) to give Borders an advantage over competitors. Borders plans to "muscle" RH at 6/23/95 meeting (259). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Publishers' representatives made frequent visits to Defts' stores to acquaint them with special deals and favored programs (DV#7 Flanagan 101).
Customers prefer deep discounts and Borders has obliged (110), and is gradually eliminating the (low) 10% cloth book discount (116). There is the receipt of free promotional racks (fixtures) (113) purchased by vendor. Also, it is admitted by Defts that the "competition" is BN, Borders and BAM (114). Also, Defts' stores are intended by them to be "category killer" (115p2){V#5 C pp. 19, 22), which means that Defts intend to put its smaller competitors out of business with their superstores. See 2/7/97 expert report of Edward B. Shils, Wharton School, referred to in V#1 WKuralt's report, published on internet at <
B&N superstores offer and sell bestsellers at a 30% discount, 30% off paperback bestsellers, 20% off select feature titles, and a 10% discount as to most other hardcover titles [V#5 J p5, 10K 1999; V#5 F p2, B&N 10-K YE 1/31/98]. Today, B&N.com "offers discounts of 50% on all New York Times bestsellers, up to 40% on features titles, 30% on hardcovers, and 20% on paperbacks" [V#5 M]. B. Dalton discounts hardcover bestsellers from 15% to 25%, with a discount card offering an additional 10% off on all purchases [V#5 F p8, B&N 10-K YE 1/31/98].//
Defendants' Superstores Adversely Affected Defendants' Mall-Size Chain Bookstores
B&N in 1997 was able to "outdistance our competition, drawing 14% of the large, robust U.S. consumer book market." [V#5 F p4], done in part by taking sales away from B&N's B. Dalton stores [V#5 F pp. 13, 15-16], and "closing more than 50 B. Dalton stores per year since 1989" [V#5 F p13] while opening 65 B&N stores in 1997 alone [V#5 F p13]. Intimate was able to compete and prosper in spite of the B. Dalton competition, but could not compete against Defts' superstores. B&N attributed its success to its "buying practices" [V#5 F pp. 4, 6]. This adverse effect upon B&N's B. Dalton stores continued, through 2000 [V#5 H-I Ex13.1p13], in which B. Dalton had 89 store closings. Also, as to the B. Dalton stores suffering adversely from Defts' superstore competition, see B&N's 1999 Annual Report [V#5 G pp25, 27, 31, 32, 52], and completed the store-closing program in 1999 [Id. p52]. Borders experienced similar losses of comparable-store revenues as to its Waldenbook stores during the same period because of Defts' superstore competition (V#5 K).
Defendants and Intimate Were Buying Many of the Same Titles
B&N published its top 40 titles for 1997 [V#5 F p33]. B&N and Borders have testified by declaration in the ABA action that they buy each of the titles published by the Publishers. Judge Orrick held that by reason of such admissions, the ABA plaintiffs were buying the same titles as the Defts. American Booksellers, supra at 1039 (see quote below at p. 27). All parties bought all bestsellers {V#1 WKuralt 11} [DV#7 Bostelman 119-120] (DV#7 Flanagan 85-87).
Effect of Same Decline in Sales on Average Independent
Defts admittedly do not negotiate "prices", only individual components ("terms") [DV#7 Bostelman 102-103] (DV#7 Flanagan 39-41, 54-59). According to the ABA's 1998 ABACUS Survey {V#5 K p4}, Independents had the following average net income before taxes: 1994 - 3.17%; 1995 - 1.89%; 1996 - 2.26%; and 1996 - 0.74%. {Id. at p4} The average Independent would be pushed into unprofitability by the loss of profit margin equal to 0.74% of sales. For a bookseller such as Intimate purchasing at a 42% average discount, a loss of less than 2% in sales would cause unprofitability (.42 + .42 = .84).
B&N's B. Dalton's stores experienced a "comparable store sales decrease of" 0.3% in 1993, 2.3% in 1994, 4.3% in YE 1/27/95 and 1.0% in YE 1/27/96, while B&N stores were experiencing comparable-store increases of 6.9% and 7.3% during the same years [V#5 F p16,25 and V#5 F Ex13.1p12]. Borders experienced similar comparable store sales decreases as to its Waldenbook stores (V#5 I p 13.1 et seq.).
Defendants' "Meeting Competition" Inducements for Discriminatory Prices
Defts do not ask for equal prices being given to competitors (DV#7 O'Donnell 47-48); Defts do not know their competitors' costs (Id.) or Defts' own book costs (Id. at 13). Defts have a routine for inducing higher and higher discounts, which is (i) to determine some new basis for compensation, and (ii) searching for the first Publisher to pay such new compensation, and then (iii) request all other Publishers to provide the same payment by offering a "Meeting Competition Letter" [DV#7 Bostelman 105-108], [192](235), or to take a price component given to them by one Publisher and request every other Publisher to give the same component to Defts, not knowing any competitor which is also receiving such requested component (DV#7 Flanagan 57-59). Defts do not know the effective discount at which they are buying books {highlighted ref. p. 4}, and therefore Defts' representations that the requested payment is needed to meet competition is a material misrepresentation. Defts' objectives are to extract the lowest possible price from Publishers irrespective of the price at which they sell the same titles to Defts' competitors. None of the Defts know the prices at which any competitor is purchasing books {highlighted ref. p. 4} except for purchases by Independents, as to which the prices are published in the ABA Red Book. Defts as well as the Publishers issue "meeting competition" letters for alleged legal protection, but without any factual basis (199, 235) [230]. Little Brown observed to Defts'˙"meeting competition" request that to request payment within 30 days of invoice date (against book receipt date) cannot be accepted (if true) because this would be discriminatory to Little Brown's other customers (143).
Intimate Remains in the Bookselling Business But Is Unable to Compete as Long as Defendants
Are Obtaining Their Discriminatory Prices (i.e., Effective Discounts) from the 14 Publishers
Intimate closed its large bookstores by early 1998 {V#1 WKuralt 66-75}, but has continued in the bookselling business (under the trade name Past Perfect Antiques & Books, Pittsboro, NC - V#1 BKuralt 32), offering new books which remained - (8,000 copies, not returned to Publishers) after the bookstore closings; buying and selling rare and other used books; and ordering new books from smaller publishers and wholesaler Baker & Taylor - an inventory of 2,000 different titles {V#1 BKuralt 32-33, V#1 WKuralt 62-63}. Intimate cannot run a profitable business of selling books in competition with Defts (without being able to buy the same titles on non-discriminatory terms; to try to compete without the same book costs would be futile, throwing away money without any hope of breaking even or making a profit {V#1 WKuralt 61-64, V#1 BKuralt 32-34}.
Defendants' RDC's Did Not Produce Equivalent Cost Savings for the Publishers, and the RDC Fees
Were Not Available to Intimate for All or Part of the Same Services Intimate Was Performing
Defts use their own claimed cost savings and own cost structure to make the argument that the Publishers have the same costs and enjoyed the same cost savings. This is wholly inappropriate. The specifics of what each Publisher was saving were not known to Defts and not provided to plaintiffs. Defts do not know the extent to which the Publishers actually derived any cost savings by reason of the RDC and RC fees.
For many reasons, including the following, the Publishers did not enjoy the cost savings claimed by Defts: 1. If the Publishers had savings from these activities, they would have encouraged Intimate and others to adopt the same practices by making the RDC and RC fees available to them in proportion to the services they took over from the Publisher; 2. The Publishers never made RDC or RC fees available to Intimate, and never made any part of the RDC or RC fees available to Intimate for providing some of the services, and withholding part of such fees for not providing other parts of such services {V#1 WKuralt 37-41}; 3. Intimate has run a book-store chain (in excess of the minimum number of stores required by some of the Publishers for RDC/RC fees), and states that the labor cost for picking and packing, as claimed by Defts, is excessive; that the Publishers do not avoid some of the costs claimed by Defts; that the Publishers and RDC's combined incur substantially greater freight charges because of the substantially longer distances required to ship from Publisher to RDC and then to bookstore as compared to direct shipment from Publisher to bookstore; duplicative warehousing costs; duplicative handling/receiving/reshipping costs {see V#1 WKuralt 48-51}; 4. Defts admittedly are unable to get books to their bookstores within the same period as Publishers' direct (drop-ship) shipments, and are adding additional costs to the Publishers by demanding early shipment to the RDC to make up for this failing; and 5. Some Publishers insist that 1% is the most that can be paid, and that 2% is excessive.
Defts claim that their RDC's saved Publishers on their shipping and handling costs, and resulted in reducing the Publishers' costs through lower-cost carton-quantity book shipments. Actually, the RDC's did not accomplish these asserted cost-saving goals, and the Publishers had to undergo additional costs (1) early-shipment of books to RDC (weeks before they were drop shipped to individual stores) to ensure the RDC's had sufficient time to reship the books to Defts' bookstores, at additional costs to the Publishers; (2) Defts required special packing and marking on the boxes, to indicate the final bookstore destination or storage areas for the books; (3) Publishers gave the highest discount plus 2% RDC discount (totaling about 48% to 50%) as to orders of single copies (20%) or 2-9 copies (40%), depriving the Publishers of the benefits of their "carton-quantity only" rule; (4) Defts also got a 1% return center fee tied in with the RDC fee; (5) Defts also got a 1% reshipment fee to cover freight from the RDC to the bookstore (a double freight cost, because the RDC fee covered freight to the RDC); (6) at least one Publisher (HC) paid for the freight on the invoices, and then on a quarterly basis paid Defts for such freight as asserted reimbursement (a double payment of freight by the Publishers); (7) Publishers provided huge storage area for overstock books (a reserve held for Defts), which books were not available to Intimate, and would become worthless shortly thereafter, and sold as remainders; (8) Defts reduced the freight expense by using their own trucking firms, at lower cost, but the RDC fee was calculated in part on the Publishers' savings, not the Deft's cost (thereby shifting a profit element to the Defts); (9) the Publishers had to set aside loading bays for full-time use of the Defts to continually place books in trailers to be trucked to Defts' warehouses when 100% full, but the Publishers had to separate the books and clearly mark the packages for Defts, at a cost to the Publishers; and (10) the known cost of shipping one book is $.17, but the Publishers were paying a RDC fee of 2% ($.34) on a $17 book, and saving only $.17 (before taking away the other costs being incurred), with another 1% ($.17) being paid for the RC fee; (11) Defts' expert uses Defts' labor and other costs, not the individual Publishers' labor and other costs, which makes the report irrelevant and speculative; (12) Intimate had a much lower labor cost for picking and packing than estimated by Defts; (13) Defts do not take into account their higher return rate as a cost to be charged to the Publisher (through the return of books which have no value, and related reduction of Publishers' invoices) (213) or that independents are more efficient and impose fewer costs on Publishers {V#1 WKuralt Exp. Rpt pp 32-34}; and (14) Defts do not take into account that the 1% RC Return Center fee induces Defts to return a higher percentage of books to the Publishers (at a higher cost to the Publishers); (14) Defts and Borders expert Alan Cox do not explain why some Publishers offer only a 1% RDC fee and others offer as much as 4%. Ballantine Book's Murphy states that part of the problem is B&N's "WINGS computer system is a nightmare" [246p3], a putting heavy costs on Publishers to change their systems to accommodate to B&N's system. Borders says B&N should be penalized for its excessive returns (247p4) and title hording (247p4).
Miscellaneous other discrimination is the 1% additional discount given to Defts for electronic ordering of books {CDV#8 Balog 77-78}, which discount was not made available to Intimate {V#1 WKuralt 31} even though Intimate always had the capability for electronic ordering.
Intimate's Damages
Intimate has provided a substantial amount of evidence showing damages {V#1 WKuralt 17-30, V#1 BKuralt 10-17, 25-29; V#1 CKuralt.; V#1 Sease, V#1 PKardon, V#1 BKardon; and the expert reports of WKuralt (V#1 pp. 75-88), Sam Kursh, Chris Campos and Bruce Kardon}; and accompanying declarations in V#1 of various former customers of Intimate. Also, see page 37 below.
I. JOINT MOTION DOES NOT RAISE ISSUE AS TO INTIMATE'S ALLEGATIONS
Defts' motion fails to address Intimate's allegations of discrimination in <188> 35 (a)-(m) of the complaint. Judge Orrick made such observation and ruled ("As Defts do not dispute that they received discounts that were not available to plaintiffs, Defts' motion for summary judgment cannot be granted on this argument."). American Booksellers Ass'n, supra at 1043. Defts' failure to provide admissible evidence of what Defts have been receiving (e.g., end-cap allowances, pocket allowances, deductions from invoices, freight and other rebates, RDC discounts, RC discounts, freight reimbursement, statistical reserves and other allowances), or to deny that Defts are receiving such benefits, fails to raise any issue required to be met by Intimate. A general statement in a declaration that Defts are not violating the RPA is not sufficient. It fails to meet the specificity of Intimate's allegations. Also, as to the claimed "meeting competition" defense, Defts have no evidence that they are entitled to prevail before a trier of fact: no evidence of any effective discount by any Publisher given to Defendant(s) to "meet competition" of other Publishers, or the amount of the effective discount given to Defts or any of Defts' competitors by any other Publisher.
II. INTIMATE HAS A PRIMA FACIE CASE OF "INJURY TO COMPETITION"
Intimate does not have to show that it suffered actual injury in order to obtain injunctive relief or monetary damages under the RPA. It must show only that there is a reasonable possibility that the unlawful price discrimination received by Defts may harm competition. American Booksellers, supra at 1037, citing Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434-45 (1983). Direct evidence of diverted sales is sufficient. Falls City at 437. Also see Godfrey v. Pulitzer Publ'g Co., 2002 U.S. App. LEXIS 272, *11 (D.C. App. 2002) (reasonable possibility that the discriminations may have harmed competition); Barr Laboratories, Inc. v. Abbott Laboratories, 978 F.2d 98, 106 (3d Cir. 1992) ("reasonable possibility that a price difference may harm competition"); J. F. Feeser, Inc. v. Serv-a-Portion, Inc., 909 F.2d 1524, 1526 (3d Cir. 1990) (and which resulted in actual damage to plaintiff). The "requisite injury can be inferred from evidence of a substantial price difference between competing purchasers over time, because such a price difference may harm the competitive opportunities of individual merchants and, thus, create a reasonable possibility that competition itself may be harmed". American Booksellers, supra, at 1037, 1057-1058, citing FTC v. Morton Salt Co., 334 U.S. 37, 46-47 (1948); and Hygrade Milk & Cream Co. v. Tropicana Prods., 1996 U.S. Dist. LEXIS 6598, * 10-11 (S.D.N.Y. 1996) (substantial price difference and reasonable possibility may harm competition). Intimate has made the requisite showing of extended, substantial discrimination by the Publishers favoring Defts, injury to Intimate, other independent bookstores and to Defts' own mall-size bookstores, and a loss of a substantial percentage of previously-existing independent bookstores in the U.S. George Haug v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 142 (2d Cir. 1998), cited by Defts, is in total agreement, and does not use the term "substantially injured competition" (see Defts' Mem. p. 16). Intimate has shown that the discriminatory prices were substantial, sustained over a long period of time, and that the relevant market was adversely affected by such discriminatory pricing.
Defts continually misrepresent to the Court in their memorandum that Intimate has failed to do various things (e.g., pp. 18, "plaintiff has failed to identify any actual, specific discriminatory sales as between plaintiff and the five defendants in this case"). There has been no proceeding prior to Defts' motion for Intimate to make any presentation of the evidence produced by Defts under protective order prohibiting the Kuralts from seeing or learning about such evidence. To continually misrepresent this fact, is improper, and is further improper for Defts to fail to discuss the existing evidence which they produced to Intimate's counsel. Failing to do makes Defts' motion a sham, designed to mislead the Court and not to identify any material factual issues which do not require a trial. The issue is whether the Defts can assure the Court that they have produced no evidence to plaintiff which would enable the plaintiff to create a triable, material factual issue. Defts have not made the appropriate review of their own evidence and have made their motion in bad faith. Defts produced this same ABA-action evidence to Intimate, but they do not attempt to review such evidence to explain how there is insufficient evidence of price discrimination.
III. INTIMATE HAS SHOWN REQUISITE FACTS TO ENABLE JURY TO DETERMINE WHETHER HARM TO COMPETITION IS LIKELY
Chrysler Credit Corp. v. J. Truett Payne Co., Inc., 670 F.2d 575, 581 (5th Cir. 1982) (cited by Defts. at p. 19, n. 70) lacked a witness with actual sales experience, and lacked substantial evidence that the plaintiff's temporary (1-year) 4% decline in sales was attributable to the alleged discrimination. Intimate, on the other hand, has provided witnesses with substantial bookselling experience {WKuralt - 40 years, and BKuralt - 35 years}; discrimination in percentage 60%+ discount for Defts compared to 42% for Intimate, over a long period of time (1993-1998), with Defts' own mall-size stores being adversely affected by Defts' superstore activities, with about 50% of the independent booksellers going out of business. Truett Payne's discrimination was $11 per automobile, a miniscule amount. Intimate has demonstrated that the discriminatory discounts to Defts were 3 times the amount of Intimate's net (pre-tax) profit, expressed as a percentage of net sales. Intimate has an expert witness testifying that, in his survey, Intimate's customers reported that 83.2% of them were buying from Defts' superstores while Intimate was still in business (V#1 BKardon Expert Report p. 7 of 17). These superstores opened in Intimate's marketing areas during the early and mid 1990's. Furthermore, Intimate was able to increase its sales steadily, and maintain its market share at 1/10th of 1% of all books sold by ABA members for many years, in spite of competition from Wal-Mart, Sam's Club, B. Dalton and Waldenbooks, until Defts opened their superstores in competition with Intimate {V#1 WKuralt 86}. Also, Defts' superstores were intended to be "Category Killers" (115p2){V#5 C pp. 19, 22}, meaning that their intent was to put Intimate and other independent booksellers out of business - which they did.
It should be noted that it is impossible to provide an econometric analysis because of the large number of variables involved. Defts' superstores and their features were thrust into competition all at once, which created too many variables for econometric (regression) analysis. See expert opinion of Michael Einhorn (Einhorn Decl., Ex. A,). Judge Orrick refused to accept an expert opinion in the ABA action because it did not deal with all the variables. [Intimate had never retained such expert, contrary to Defts' assertion. Same Kursh is the expert who refused to prepare the expert economic report.]˙ Defts' experts did not disagree with Einhorn (V#3: Tr: Ordover 14-15; Shulman 4-5; Johnson 7; Peacock 33; Blattberg 31-33; Cox 8-9 and O'Connell 4-5) and do not know and were not asked if economic modeling was even possible (Id.); and defendants have offered no expert opinion contrary to expert Einhorn's opinion (Id.).
IV. DEFENDANTS' HIGHER DISCOUNTS ADVERSELY AFFECTED COMPETITION BY LOWER PRICES, BETTER LOCATIONS, MORE TITLES, TOO COSTLY FOR INTIMATE
Proof of damages for unlawful discrimination is not limited to sales drawn away by lower prices. Sales are also drawn away by using part of a discriminatory discount to purchase a higher quality of service for customers, using part of the higher discount to provide a better location, more space in the store, a larger selection of books, more copies of books, free parking, free reading of books, area for display and reading of magazines; area for reading while having coffee and snacks; public bathrooms, public assembly areas to meet authors - attractions which Intimate could not afford out of its lower discounts, which attractions also drew customers away from Intimate. See Intimate's survey, an exhibit to the Bruce Kardon Decl. Defts' claimed "pass-through" requirement has no support, and was probably derived from the pass-through (reasonable) effects of a functional discount. Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 561 (1990). It is the amount in excess of a reasonable functional discount which causes the problem for competition, and there is no requirement that a plaintiff prove that the excessive portion of a functional discount be spent by its recipient in any particular way. Congress wanted to allow true cost savings to be passed through to buyers, but did not require this; nor did the method of pass-through have to be by a lower price. FTC v. Henry Broch & Co., 363 U.S. 166, 187 (1960). Higher quality of services is also a pass through (and is just as cognizable under the RPA as discriminatory services and credit terms which can violate <185><185> 2(a) and 2(f)). No case holds that liability for price discrimination is contingent upon any pass-through solely as a price reduction, and any such decision would effectively eliminate the RPA, and result in higher prices for consumers, by superstores immunizing themselves from liability by not reducing their book prices and by using higher quality of services instead to take away competitors' customers. A causal link to suffered losses is required, not a pass-through of the discount to consumers. See Perkins v. Standard Oil Co., 395 U.S. 642, 648, 89 S. Ct. 1871, 1874, 23 L. Ed. 2d 599 (1969). J. Truett Payne at 564 did not rule on any pass-through requirement, and left open whether "antitrust injury" can recognize that "to the extent a disfavored purchaser must pay more for its goods than its competitors, it is less able to compete. It has fewer funds available with which to advertise, make capital expenditures, and the like." In Black Gold, Ltd. v. Rockwool Industries, Inc., 729 F.2d 676 (10th Cir. 1984), the Court stated:
Intimate has provided evidence that Defts were passing on substantial parts of their discriminatory discounts (offering discounts from 20% to 30% off retail prices), pretty much adding up to the whole amount of the additional discounts which Defts were receiving over and above Intimate's 42% - 43% average discount. Contrary to Defts suggestion (mem. p. 22), Coastal Fuels, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182, 195 1996 U.S. App. LEXIS 4365 (1st Cir. 1996) does not require an expert to prove that defendant had passed on (or fully passed on) their lower costs to customers.
The purpose of "passing on" lower costs is to ensure that the plaintiff was in fact injured. Passing on lower costs through price decreases is one type of "passing on", but providing higher quality of services (such as free parking, more extensive selection of goods, free test trial of product and facilities) also passes on the lower cost, resulting in a shift of customers to the favored purchaser. See Huntsman Chem. Corp. v. Holland Plastics Co., 2000 U.S. App. LEXIS 3083, *16 (10th Cir. 2000).
V. INTIMATE WAS NOT OFFERED THE DISCRIMINATORY DISCOUNTS OR BENEFITS
Defts represent that Intimate could have had the same prices if it wanted them, but that Intimate rejected all opportunities to receive lower prices. This is absurd. The Publishers did not make coop advertising allowances available except as delayed reimbursement for actual expenses incurred and proven, with onerous requirements, while Defts obtained their allowances without expenditure, proof, delay or hassle; Defts obtained their RDC/RC discounts without any of them being offered to Intimate in whole, or on an unbundled basis; Defts took deductions from invoices which reduced their invoices by tens of millions of dollars each year, without deliveries being stopped; but Intimate could not renegotiate any of its invoices in this fashion. Publishers never offered these favored discounts or other benefits to Intimate on the same terms and conditions as offered to Defts because the Publishers admitted that they would go broke if such terms (coop allowance) were used by all booksellers.
VI. THERE ARE NO NO FUNCTIONAL DISCOUNT OR COST JUSTIFICATION DEFENSES
Intimate has shown that Defts induced and knowingly received the discriminatory discounts. Furthermore, most of the discriminatory payments have nothing to do with functional discounts or cost justification. The 2% RDC and 1% RC discounts are the exception, and Intimate has demonstrated that the RDC and RC discounts are merely added compensation for doing what Intimate and other independent bookstores have been doing in the regular course of their business, but which Defts were unable to do (because of unwillingness to hire competent employees at the bookstore level). Also, Defts are compensated far in excess of any savings (freight and pick & pack expenses), and Defts fail to take into account other costs imposed upon the Publishers, such as early shipment, penalties for non-compliance with Defts' shipping rules, excess book returns, value of returned books in relation to the costs incurred for return. If RDC, RC and freight allowances were valuable to the Publishers, why did they not offer such opportunities to Intimate and other independents? Defts' "functional discount" is a subterfuge and sham. How can Defts be performing tasks for the Publishers when Intimate and other independent are performing most of the same tasks for no additional compensation? Defts continually set up the Kuralts as straw persons knowing they were not permitted to see the evidence produced by Defts. Intimate's evidence is at: WKuralt 11 {V#1}; Frazier ABA testimony (V#2 J 78-167); and Exhibits 001-280 in CV#4.
VII. DEFENDANTS HAVE NO MEETING-COMPETITION DEFENSE
Defts have no meeting-competition defense for a variety of sufficient reasons, including: 1. Defts do not have any specific price (effective discount) for specific titles which they are seeking a competing Publisher to meet; 2. Defts are obtaining lower effective prices (i.e., higher effective discounts) across the board, even as to books which are not competitive between the two Publishers; 3. Defts do not know how much they are paying for books (effective discount) from either of the two Publishers; 4. Defts do not obtain or provide any information on effective discounts being received by Defts or any competing retailers, or being offered by either of the two Publishers; 5. Defts do not obtain any specific price offers from competing booksellers or Publishers which Defts are attempting to meet; 6. None of the "meeting competition" letters have any specific prices which are attempted to be met (235); 7. Defts know that Intimate is receiving none of the payments being requested and received by Defts from the Publishers; 8. Defts do not have any evidence supporting their meeting-competition determinations; 9. Meeting competition requires a review of an effective discount for book purchases rather than focusing only on a single element of a multi-element price; 10. Defts are continually encouraging all of the Publishers to provide lower and lower effective discounts to Defts without ever finding out what effective discounts are being provided by the Publishers to other major chains, and while knowing that Intimate's effective discount remains the same (receiving the ABA Red Book rate); 11. The induced pricing changes apply to all titles, including non-competing titles of the two Publishers; 12. Defts negotiate with and induce various Publishers to be the first to offer a new type of compensation to Defts, so that there never was any meeting-competition from the outset; 13. Meeting-competition defense does not apply as a matter of law to fees, allowances, payments, rebates, services and other benefits which do not directly lower a published price, but instead are used to rebate, refund or otherwise get around a published price; 14. No meeting-competition claim by Defts was accompanied by any evidence showing the overall agreement (i.e., collective benefits) which (i) a Publisher was offering or giving to any competitor of Defts, or (ii) a competitor of Defts was offering to or receiving from any Publisher with whom Defts were allegedly meeting competition.
VIII. PLAINTIFF SHOWS PRIMA FACIE CASE OF NO MEETING-COMPETITION DEFENSE
The issue is not whether Defts have admissible evidence to present to a trier of fact that Defts have a meeting-competition defense. Instead, the issue is whether Intimate has a prima facie case to show that Defts have no meeting-competition defense. Intimate has provided a prima facie case. See preceding point. Also, the discriminatory terms for Defts have never been limited to any particular products or geographic markets, or sales to a specific customer, thereby demonstrating that the discriminatory terms were not designed to meet any specific price of a competing publisher. See American Booksellers Ass'n v. Houghton Mifflin Co., 1995 U.S. Dist. LEXIS 21035, *16-17 (S.D.N.Y. 1995).
IX. INTIMATE BOUGHT LIKE GRADE AND QUALITY; SAME MFRS; SAME PERIOD
Intimate and Defts purchased from the Publishers all of the bestsellers appearing in the New York Times bestseller lists each week. {V#1 WKuralt 11} [DV#7 Bostelman 119-120] (DV#7 Flanagan 85-87). All of Intimate's purchases were made at published Red Book prices {V#1 WKuralt 31}; and see Intimate invoices {located as last exhibit in V#1}. "It also appears to be undisputed that Defts purchase nearly every book that is available on the market", citing the record. American Booksellers, supra, at 1039. This enabled Judge Orrick to readily dismiss Defts' similar arguments.
Furthermore, there is no requirement when pricing occurs across product lines for goods within a line of pricing to be matched with an identical item. Like grade and quality is demonstrated by having the favored and disfavored customers purchasing from the same line of goods. American Booksellers, supra, at 1039 held:
There is also evidence that publishers offer standardized discounts on entire lines of books, such as discounts on all trade book or mass market books, rather than offering individualized discounts on specific titles. (DeBruin Decl. Ex. 13, Expert Report of Gail See at 4.) Defendants do not appear to dispute that they receive discounts that are not available to plaintiffs. The trier of fact could infer from this evidence that plaintiffs and defendants must have contemporaneously bought books of like grade and quality from the same sellers at different prices. There is no need to show that each plaintiff bought a specific title at a greater price than that paid by defendants for the same title at the same time. See, e.g., Moog Indus., Inc. v. FTC, 238 F.2d 43, 49-50 (8th Cir. 1956) (where uniform discounts were given across entire lines of automobile parts, it was not necessary to show that the parties purchased the exact same part at the same time, even though the parts were were not interchangeable).
X. MINIMUM ACTUAL PRICE DIFFERENCE SHOWN WITH DEFENDANTS' HARD DATA
Intimate has established a price differential based on documents produced by Defts consisting of (a) discounts applicable on a per unit basis; and additional (b) rebates, discounts, payments, refunds, services and other benefits which amount to in excess of hundreds of millions of dollars. Because of part (b), Intimate can only calculate the minimum actual difference, by taking Defts' invoiced RDC price of 49%-50% discount (225), and adding to such discount Defts' 4-8% advertising allowance, 1% freight allowance to RDC's, 1% return fee, about 1% statistical reserve, return rate without imposition of penalty by Publishers, giving Defts a minimum discount on per unit book purchases exceeding a calculable 60%, plus the part (b) payments as a percentage of Defts' net purchases from each Publisher. See pages 4-24 above. The Kuralts were not permitted to see the evidence produced by Defts because Defts designated the documents "highly confidential" under the Confidentiality Agreement so-ordered November 18, 2000 (V#5 A).
Intimate has never received any advertising allowance other than by reimbursement for actual expenses incurred, after a lengthy, discriminatory, costly process which Defts did not follow. Defts, instead, did not have to prove any actual expenditure, and admit that 100% of its in-house end-cap, pocket, table and other allowances are profit, as well as a percentage of its newspaper, radio and television advertising allowances.
XI. INTIMATE'S GROSS PROFIT ANALYSIS IS ON A SPECIFIC PUBLISHER'S PRODUCT LINE BASIS (COMPARING DEFENDANTS' EFFECTIVE DISCOUNTS WITH INTIMATE'S DISCOUNT), AND NOT A COMPARISON OF PROFIT MARGINS
Intimate's complaint and evidence is that higher effective discounts for Defts by each Publisher gave Intimate less money per book (in each category of book) for such Publisher to provide the across-the-board discounts, higher bestseller discounts, facilities, services and other inducements which Defts used to take away Intimate's customers. Intimate shows these higher effective discounts for each Deft as to each Publisher. There is no possibility of comparing overall profit margins, especially because all Defts hide their profit margins by including rent ("occupancy") in cost of goods [V#5 F p. 15]. Intimate has provided copies of invoices for the Publishers (end of V#1) and has provided copies of Defts' invoices and purchase orders and other documents (CV#4). The evidence proving additional discounts, rebates, fees, allowances, payments, deductions, benefits and other valuable considerations is set forth throughout the numbered Exhibits (CV#4).
XII. INTIMATE HAS PROVIDED SUBSTANTIAL EVIDENCE THAT DEFENDANTS INDUCED AND/OR KNOWINGLY RECEIVED THE UNLAWFUL DISCOUNTS
The evidence is overwhelming. Defts demand and receive additional funds from the Publishers in so many different ways that the Defts do not know how much they are paying per unit for books, either from the Publisher providing the unlawful discount or the alleged competitors of such Publisher. Defts do know, however, that Intimate and other independents are not getting any of these discriminatory payments, because all they are getting is the published Red Book discount. In spite of not knowing how much they are paying per unit for books, the Defts continue to demand (and receive) higher effective discounts from all of the Publishers on a systematic basis. See references, pp. 4-7 above, "Defendants Knew or Should Have Known".
XIII. INTIMATE HAS SHOWN THAT DEFENDANTS KNEW OR SHOULD HAVE KNOWN THAT THE PRICES THEY RECEIVED WERE DISCRIMINATORY AND UNLAWFUL
Under <185> 2(f), a buyer is liable if it induced a discriminatory price, or knew that the price it was receiving was discriminatory. A long line of cases have held that the test is whether the buyer "knew or should have known" that the price was discriminatory. A&P v. FTC, 557 F.2d 971, 986; 1977 U.S. App. LEXIS 12814, *44 (2d Cir. 1977); Grand Union Co. v. FTC, 300 F.2d 92, 100; 1962 U.S. App. LEXIS 5968, *25 (2d Cir. 1962); American News Co. v. FTC, 300 F.2d 104, 110; 1962 U.S. App. LEXIS 5969, *14 (2d Cir. 1962); United Magazine Co. v. Murdoch Magazines Distrib., 2001 U.S. Dist. LEXIS 20878, *16 (S.D.N.Y. 2001); and Hygrade Milk & Cream Co., Inc. v. Tropicana Products, Inc., 1994 U.S. Dist. LEXIS 1091, *5 (SDNY 1994).
15 U. S. C. <185> 13(f), provides: "It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section."
United States v. United States Gypsum Co., 438 U.S. 422, 451-2; 1978 U.S. LEXIS 131 (1978) held that the Deft must "show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor"; and that this requires personal knowledge; also, the claimed low price of a competitor must be "investigated" or verified". Kohner v. Wechsler, 477 F.2d 666, 672-73; 1973 U.S. App. LEXIS 10654, *21-23 (2d Cir. 1973) held:
The statute at least requires the seller, who has knowingly discriminated in price, to show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor." FTC v. A.E. Staley Mfg. Co., 324 U.S. 746, 759-60, 89 L. Ed. 1338, 65 S. Ct. 971 (1945) . In Kroger Co. v. FTC, 438 F.2d 1372, 1377; 1971 U.S. App. LEXIS 11668, **14; 1971 Trade Cas. (CCH) P73,489 (6th Cir. 1971), the Court held:
In order for the buyer to be sheltered through the exoneration of the seller under section 2(b) the prices induced must come within the defenses of that section not only from the seller's point of view but also from that of the buyer. To hold otherwise would violate the purposes of the Act, and frustrate the intent of the Congress.
Also, see Fred Meyer, Inc. v. FTC, 359 F.2d 351, 366-367; 1966 U.S. App. LEXIS 6830, *40-41 (9th Cir. 1966) ("reason to know" standard); Kroger v. FTC, 438 F.2d 1372, 1377 (6th Cir. 1971) (buyer's misrepresentation of competing price caused loss of defense); and˙American Motor Specialties Co. v. FTC, 278 F.2d 225, 228-229; 1960 U.S. App. LEXIS 4640, *6 (2d Cir. 1960) cited the following Supreme Court language [Automatic Canteen v. F.T.C., 1953, 346 U.S. 61]:
Petitioners of course knew that they, as individual firms, were receiving goods in the same quantities and were served by sellers in the same manner as their competitors, and hence organized themselves into a buying group in order to obtain lower prices than their unorganized competitors. Hence, by the very fact of having combined into a group and having obtained thereby a favorable price differential, they each, under Automatic Canteen, were charged with notice that this price differential they each enjoyed could not be justified. And this knowledge of each of the seventeen individual firms is imputable to the organization of which they were all members. Thus, irrespective of whether the buying groups' efforts to bargain with the various manufacturers constituted an improper inducement under Section 2(f), we hold that the Commission introduced sufficient evidence to fulfill the requirements of Automatic Canteen when it showed that petitioners knowingly received preferential price treatment of such a nature as to violate Section 2.
In American Booksellers, supra at 1055-56, the Court stated:
There are very few reported opinions discussing which party has the burden of proof on the meeting competition defense in a buyer liability suit under § 2(f). The Supreme Court has suggested, without expressly holding, that the burden might fall on the defendant-buyer because it would have easy access to evidence that the seller offered it a discounted price in order to meet a competing seller's offer. Automatic Canteen, 346 U.S. at 79 n.23. The Supreme Court's suggestion was followed in Thurman Industries, Inc. v. Pay'N Pak Stores, Inc., 709 F. Supp. 985, 996 (W.D. Wash. 1987). While the [defendant] buyer may not have evidence relating to a seller's state of mind in quoting a low price, the [defendant] buyer is aware as to whether the price is generally competitive with the price of other sellers. It is up to the [defendant] buyer to come forward with evidence in this regard if it desires to take advantage of the meeting competition defense.
* * * Accordingly, this Court will follow Thurman. Thus, defendants have the burden of showing that the discounts they received from the nonsignatory publishers satisfy the meeting competition defense.
Defendants have not even attempted to meet that burden. * * *
Other relevant cases include Hygrade Milk & Cream Co., Inc. v. Tropicana Products, Inc., 1994 U.S. Dist. LEXIS 1091, **10 (SDNY 1994) (buyers were sophisticated wholesalers; buyers falsely reported sales to obtain product at discriminatory discount prices); Eagle Windows of Northern Illinois, Inc. v. Eagle Window & Door, Inc., 1992 U.S. Dist. LEXIS 1254, *6 (N.D. Ill., E. Div. 1992) ("According plaintiff the benefit of all reasonable inferences, the Court finds that there are factual issues going to the state of the competing distributor's knowledge."); Abbey Steam Specialty Co. v. Armstrong International, Inc., 1987 U.S. Dist. LEXIS 13782, *8 (N.D. GA, Atl. Div. 1987) (sufficient evidence of buyer's knowledge of its favorable discount to create genuine issue); Fred Meyer, Inc. v. Federal Trade Commission, 359 F.2d 351 (1966), rev'd on other grounds, 390 U.S. 341, 19 L. Ed. 2d 1222 (1968) (Deft's knowledge of discriminatory pricing, operating a "vigorous intelligence network" of comparison shopping and review of price bulletins); Tube-Alloy Corp. v. Homco Intl., Inc., 1986 U.S. Dist. LEXIS 15850, **14-16 (E.D. LA 1986) (Buyer's 50%-plus market share enables it to misstate metal-alloy grade composition and induce and compel an unfair price advantage from certain threaders); Indian Coffee Corp. v. P&G, 482 F. Supp. 1104, 1108-9; 1980 U.S. Dist. LEXIS 9864, **14 (W.D. PA 1980) (instigation of discriminatory payment was sufficient to find buyer guilty of "knowingly inducing" a price discrimination; also, price concession is clear when the concession is directly related to the number of units purchased); and Zoslaw v. MCA Distributing Corp., 594 F. Supp. 1022, *; 1984 U.S. Dist. LEXIS 23888, **21-27 (N.D. CA 1984) which held:
.... It explained that the defendant's failure to employ verification procedures (rigorous methods of verifying that any discounts in its prices were offered in response to equally low discounts offered by competitors) n6 was "not inconsistent with the type of aggressive price reductions condemned by the Robinson-Patman Act." Id. at 1047. Thus, the court was not persuaded [**25] that the theory that the defendant's actions were a good faith attempt to meet competition "was the only reasonable conclusion possible." Id. For that reason, summary judgment was inappropriate. * * *
To this court's chagrin, WEA has not even attempted to discuss, much less distinguish, Inglis. Nor has it presented any evidence that it made a practice of employing verification procedures in setting its prices. Its silence on the matter perhaps reflects realization that Inglis cannot be effectively distinguished. Even if WEA believes otherwise, this court is convinced that Inglis is controlling, and thus that WEA is not entitled to summary judgment on the basis of the meeting competition defense.
Also, see Kapiolani Motors, Ltd. v. GMC, 337 F. Supp. 102, 104; 1972 U.S. Dist. LEXIS 15273, **5-6 (D. Hawaii 1972) (Kroger case involved "induced" price discrimination when knowing that the quoted figure was far below the figure quoted to other buyers). Defts have created and maintained purchasing departments comparable to the purchasing organizations described in Big Value Stamp Co. v. Sperry & Hutchinson Co., 1967 U.S. Dist. LEXIS 11129, **12 (S.D. OH, W. Div. 1967) (various purchasing organizations were formed to receive volume discounts larger than competing non-members; easy for Court to conclude that the buyers "knowingly received" discriminatory discounts). Defts knew their return rates were extraordinarily high, imposing costs on the Publishers which Intimate did not impose, and that the Publishers failed to take these additional costs attributable to Defts into account. United States v. Borden Co., 370 U.S. 460, 470 (1962) and American Booksellers (1995), supra, at 29, in "Rules for the Application of the Robinson-Patman Act to Book Publishing, states:
XIV. EXPERT TESTIMONY IS NOT REQUIRED; AND INTIMATE HAS VARIOUS EXPERTS TO PROVE LIABILITY AND DAMAGES
Defts seem to argue that Intimate requires specified types of experts to prove its case. This is not the law. Experts are not always essential in an antitrust action. See United States v. Pabst Brewing Co., 384 U.S. 546, 549 (1966) (government need not prove "by an army of expert witnesses what constitutes a relevant 'economic' or 'geographic' market"). Anti-Monopoly, Inc. v. Hasbro, Inc., 958 F. Supp. 895, 904-905; 1997 U.S. Dist. LEXIS 3775 (S.D.N.Y. 1997).
Expert testimony is useful as a guide to interpreting market facts, but it is not a substitute for them. As we observed in Matsushita, " expert opinion evidence . . . has little probative value in comparison with the economic factors" that may dictate a particular conclusion. Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1435-36 (9th Cir. 1995).
WKuralt and BKuralt are qualified as experts through their substantial experience in book retailing and bookstore chain creation and management. In Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1298; 1982 U.S. App. LEXIS 19414, **10 (9th Cir. 1982), the court upheld a party's use, as an expert witness, of "an executive with a competing national concessionaire". Chroma Lighting v. GTE Prods. Corp., 1997 U.S. App. LEXIS 6725, **10 (9th Cir. 1997) (Von Der Ahe met the liberal standards for qualifying as an expert on the subject of his business' lost profits or sales because he was the owner and manager of his business. Cf. Teen-Ed, Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403 (3d Cir. 1990) (accountant of business not required to qualify as expert to testify regarding lost profits or sales or to project future profits). In sum, Von Der Ahe presented sufficient evidence to establish the amount of damages.)
Lightning Lube v. Witco Corp., 4 F.3d 1153, 1175;1993 U.S. App. LEXIS 23286, *53-54 (3d Cir. 1993) held:
As we have recognized previously, "the modern trend favors the admission of [lay] opinion testimony, provided that it is well founded on personal knowledge and susceptible to specific cross-examination." Teen-Ed, Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403 (3d Cir. 1980). Venuto thus was not required to qualify as an expert to offer opinion testimony concerning Lightning Lube's lost profits. Id. (accountant's personal knowledge of plaintiff's balance sheets sufficient to qualify him as a lay witness eligible under Rule 701 to testify as to calculation of lost profits); Joy Mfg. Co. v. Sola Basic Indus., Inc., 697 F.2d 104, 110-12 (3d Cir. 1982) (district court abused its discretion in striking nonexpert opinion testimony rationally based on witness's personal knowledge).
United Biscuit Co. v. FTC, 350 F.2d 615, 622 (7th Cir. 1965) cited by Defts. (p. 20) states that a store owner's testimony should be supplemented with "all the attendant facts and circumstances", but did not say that a plaintiff in a civil case had to get any determination from the FTC or any opinion from any type of expert.
Maier-Schule GMC, Inc. v. General Motors Corporation, 154 F.R.D. 47, 52; 1994 U.S. Dist. LEXIS 3227, **15 (W.D.N.Y. 1994) (damages are provable by documents or expert testimony, from which a jury could fairly estimate plaintiff's damages).
The Hanover Shoe, Inc. v. United Shoe Machinery Corporation, 245 F. Supp. 258, 293; 1965 U.S. Dist. LEXIS 9551, **97 (M.D. PA 1965), in an antitrust action, held: Whether expert opinion is required is a matter within the discretion of the court. Conry v. Baltimore & O.R. Co., 3 Cir. 1953, 209 F.2d 422. Expert testimony is permitted if the court determines it is necessary to aid the fact finder in a full understanding of the issues.
Also, Indian Coffee Corp. v. P&G, 752 F.2d 891, 902; 1985 U.S. App. LEXIS 27867, **34 (3rd Cir. 1985), an RPA case, held that competitive injury can be proven by evidence of sales below cost from which predatory intent could be inferred.
XV. INTIMATE SUFFERED ACTUAL INJURY CAUSED BY THE DISCRIMINATION; AND THERE IS NO FLAWED DAMAGE MODEL
The facts are simple, and require no expert. Any jury could understand what happened. Intimate was enjoying business success (maintaining market share, and increasing sales) as against all competitors until Defts opened up their superstores in Intimate's areas. The superstores increased the square footage devoted to bookselling by 600,000 square feet (c.f. Intimate's 65,000), and the stores were designed as "Category Killers" (115p2){V#5 C 19, 22}, to put smaller bookstores out of business. The superstores were placed near Intimate's stores, offered 20-40% discounts, and additional services increasing the effective discounts to 30-50% or more. The superstores predictably took sales away from Intimate, until Intimate could no longer remain in business, and Intimate lost the value of its business as a result. Also, Intimate suffered other losses including across-the-board discount of 10% to customers, additional discounts 20% on bestsellers to club members, the costs of creating and maintaining the club, and the costs of closing various stores, among other items of expense. Defts also saw that their own smaller stores suffered significant declines in sales during the same period, which Defts attributed to the competition of their own superstores.
Experts are not required to give an opinion on the obvious. There is no expertise needed for a jury to conclude that Defts caused Intimate to suffer these losses. About 85% of Intimate's sales were of books published by the Publishers {V#1 WKuralt 31A}. This is not the situation where there is any complicated allocation required. Defts were operating illegally by inducing and knowingly receiving their excessive discounts, and returning them to consumers in Intimate's marketing areas by 20% to 40% discounts, coupled with valuable services to increase the quality of Defts' offerings to consumers. The only other superstore chain (BAM) was insignificant (2 stores were distant); and Media Player ("MP") was a non-traditional discounter similar to Wal-Mart and not significant competitively; only 1 MP store was local (in Raleigh), but as stated it was not a pure bookstore {V#1 WKuralt 7.
The numerous features used to draw customers from Intimate (resulting from startup of Defts' stores with many competitive variables) make it impossible to use econometric modelling to determine to what extent Intimate's customers went to Defts. A Charlotte NC owner testified in the ABA trial (V#2 G 3512-end & V#2 H 80-3834) it had sales increases for 17 straight years ending 9/93; B&N opened in 9/93; and immediately after sales declined, starting in FY 9/30/94 (V#2 H 218-231). The overall market for books did not increase significantly during this period. Defts' sales jumped from 0 to tens of millions of dollars per year in Intimate's marketing area, while Intimate's sales declined (identical to the Charlotte bookstore's experience in Charlotte-{V#2 G 3512-end & V#2 H 80-3834}, and required Intimate to stop its competition with Defts.
Econometric modelling with regression analysis is useful when competitors are competing in a given market, and one of them is given a larger discount (all of which is passed on to customers); the analysis can estimate how much business was lost by reason of the discriminatory price. But in the current situation, with new superstores offering high discounts and an array of costly services (amounting to higher quality of services), econometric analysis is unable to do more than guess at what a jury would readily be able to reasonably conclude. See Einhorn Decl. and annexed Expert Report {V#1}.
XVI. INTIMATE HAS PROVIDED PROOF OF ACTUAL DAMAGES
Intimate has provided a substantial amount of proof that it was damaged by the activities of Defts, and the dollar amounts of such damages. V#1 WKuralt 9-30 is anecdotal evidence of Intimate's damages, including various types of losses resulting from Defts' activities: communications with customers and former customers showing that they are now buying from Defts (Id. 22-26), buying out leases and repaying landlord loans upon closings of Intimate's stores {Id. 17}, litigation costs regarding amounts owed or possibly owed by Intimate {Id. 17}, loss in value of fixtures upon store closings {Id. 18}, and various other anecdotal items (Id. 9-30). These amounts are further listed at Id. 67-75. Also, see Kuralt's expert report at pp. 72-88.
Callahan v. A.E.V., Inc., 182 F.3d 237, 241; 1999 U.S. App. LEXIS 14649, 7-8 (3d Cir. 1999) ("The plaintiffs themselves can testify that the customers are in fact no longer shopping at their stores"; and customers' statements are admissible as evidence of the customers' states of mind - reasons for no longer shopping at plaintiff's stores). Also, see Ayres v. Sears, Roebuck & Co., 789 F.2d 1173, 1175; 1986 U.S. App. LEXIS 25178, 5-6 (5th Cir. 1986) ("Proof of the defect and of the causative element may be established by direct or circumstantial evidence based on anecdotal or expert testimony." - a products liability case); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (anecdotal evidence supported statistical measures of consumer preference).
Intimate has provided expert reports of Sam Kursh (V#1) and Chris Campos (V#1) to show the value of Intimate's business in 1996, which was lost by reason of Defts' activities. See V#1 WKuralt 68-75 and expert report (V#1) for the facts and opinion showing that Defts' caused this loss, by causing a percentage reduction in sales which finally caused Intimate's stores to be closed, as unable to compete. Id. 68-75. Defts' attempts to undermine the quality of Intimate's experts witnesses are shown to be without basis in Intimate's transcripts of their depositions at V#3 (Blattberg, Coughlan, Cox, Johnson, O'Connell, Ordover, Peacock, Shulman), and their surprising lack of knowledge about Defts' effective discounts.
Bruce Kardon's expert report (V#1 p. 7) shows that 83.2% of Intimate's 8,000 or more book club customers started buying books from B&N and Borders after they opened their superstores in Intimate's marketing areas. Also, see the expert report of BKuralt V#1 pp. 4-5), which provide additional opinions to show that Defts' caused Intimate to go out of business. Defts knew that their activities would be taking business away from Intimate {V#3 Ordover 44-47; V#3 Shulman 52, 55}. They knew that what they were doing was causing their B. Dalton and Waldenbooks mall stores (smaller book stores) to go out of business, as well.
Intimate has substantial evidence showing that the new competition added by the opening of Defts' superstores caused Intimate (and other bookstores in the U.S.) to be unable to compete any longer, because of the substantial price discrimination which Defts extracted knowingly from the 14 Publishers.
Intimate is not required to show damages with precision. Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 572 (1989); and Coastal Fuels, Inc. v. Caribbean Petroleum Corp., 175 F.3d 18, 33 (1st Cir. 1999). It has provided a substantial amount of anecdotal evidence in V#!, including declarations from many former Intimate customers stating that they started buying from Defts' superstores during the time that Intimate's bookstores were still in business, and Sease, PKardon and BKardon (including expert report) {V#1}.
Some of a plaintiff's losses are more difficult to prove because of the unlawful activities of the Defts, and for such reason the standards of proof are relaxed to some extent for the antitrust plaintiff. J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 565-567; 101 S. Ct. 1923, 1928-1930 (1981).
XVII. INTIMATE'S LOSSES WERE CAUSED BY DEFENDANTS
Defts have rummaged through Intimate's financial past and brought up events which cost Intimate money. This is not what Intimate seeks. Intimate instead seeks damages attributable to the discriminatory prices enjoyed by Defts, which caused Intimate to (a) offer all books at lower prices, (b) create a club for customers, at a specified cost to Intimate, with higher discounts as an additional cost, (c) close various stores with related closing costs (such as paying off leases), and (d) go out of business when Intimate's sales declined and its profit margins could no longer pay Intimate's overhead expenses. These are examples of the losses caused by Defts for which Intimate seeks recovery. The only new competitive factor not being met by Intimate was Defts' superstores, which even injured their own mall-size bookstores. Intimate's survey shows that the vast majority of Intimate's 8,000 club customers started buying from Defts after they opened up in competition with Intimate. Intimate competed successfully (and kept increasing annual sales) in its competition with all others, including Wal-Mart, Sam's Club, Media Player, and other non-traditional bookstores and Defts' mall-size bookstores and independent Little Professor, enjoying a steady 1/10th of 1% of market share until Defts' "Category Killer" superstores opened up, which were designed to put smaller stores such as Intimate out of business, through obtaining substantially lower, illegal book prices from the Publishers.
XVIII. INTIMATE HAS PROVED IT IS ENTITLED TO INJUNCTIVE RELIEF
Intimate has been in business since 1931 {V#1 WKuralt 3}, with its business at this time consisting of the personnel (M/M Kuralt and one other) willing and capable of operating a general bookstore, the software and computer facilities needed to compete as a general bookstore, and a modest amount of bookselling activities during the period of this litigation, showing the interest of Intimate in continuing in the bookstore business. The futility of trying to compete against Defts while they are obtaining huge discriminatory discounts and other payment and benefits from Defts has made it impossible, by reason of Defts' actions, for Intimate to continue this competition. "The relief in an antitrust case must be 'effective to redress the violations' and 'to restore competition.'" Ford Motor Company v. United States, 405 U.S. 562, 573 (1972).
However, by obtaining a permanent injunction against Defts, stopping them from seeking, obtaining and using discriminatory discounts and other payments and benefit from the 14 book publishers identified in <188> 35 of the 2nd Amended Complaint, Intimate (and hundreds of other booksellers driven out of business) would be able to resume its/their business operations and compete with each other and Defts on a level playing field. Without such injunction, Intimate and the other booksellers have found it futile to remain in business as a general bookseller competing against Defts (V#1 WKuralt 61-64 and V#1 BKuralt 30-34).
Section 16 of the Clayton Act, 15 U.S.C. <185> 26, provides in pertinent part:
Any person, firm, corporation or association shall be entitled to sue for and have injunctive relief ..., against threatened loss or damage by a violation of the antitrust laws ..., when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity....
In re Multidistrict Vehicle Air Pollution, 367 F. Supp. 1298, 1302, 1973 U.S. Dist. LEXIS 10950, *4-6 (C.D.CA. 197 3), aff'd 538 F.2d 231, 1976 U.S. App. LEXIS 8530 (9th Cir. 1976) the Court stated in n. 4:
n4 Section 16 of the Clayton Act, 15 U.S.C. <188> 26, was enacted to put private persons in parity with the United States in obtaining injunctive relief in antitrust cases. See 51 Cong. Rec. 14214-14215 (1914).
n5 ... Yet, the Supreme Court has also made clear that affirmative acts may be required of defendants whenever necessary, not only to proscribe future conduct but also "to redress the antitrust violations proved", ..., "to undo what could have been prevented ...". ...; or to "cure the ill effects of the illegal conduct", .... Reading the language of the statute and applying the rationale of the decided cases, two conclusions are inescapable: (1) "threatened" as it modifies both "loss or damage" and "conduct" encompasses not only the future as it relates to the adjudication of liability to assure free competition, but also continuing "loss or damage" which may have been caused by "conduct" already terminated; and (2) that this Court may exercise the full panoply of its traditional equitable powers to remedy all otherwise irreparable "loss or damage" that a plaintiff properly before the Court can prove. ... Equitable relief, either in its traditional concepts of prevention of continuing irreparable harm or in its antitrust application, "is flexible and capable of nice 'adjustment and reconciliation between the public interest and private needs as well as between competing claims' .... The availability should be 'conditioned by the necessities of the public interest which Congress has sought to protect'". Zenith Radio Corporation v. Hazeltine Research Inc., 395 U.S. 100, 131, 23 L. Ed. 2d 129, 152, 89 S. Ct. 1562 (1968). [4 other citations omitted.]
By reason of Defts' conduct in knowingly purchasing at substantially lower prices than plaintiff, plaintiff is unable to resume competition with Defts unless a permanent injunction is granted. Plaintiff cannot use its existing data system, computer, records, experience and know-how and presumed recovery to compete against Defts without having the requested injunctive relief.
XIX. INTIMATE IS NOT OUT OF THE BOOKSELLING BUSINESS; IT IS UNABLE TO
COMPETE WITHOUT OBTAINING DEFENDANTS' DISCRIMINATORY PRICES
WKuralt and BKuralt both testify that as of January, 2002, they are unable to compete with Defts because of the lower prices they enjoy on their book purchases from the Publishers. Intimate has the ability (including personnel, training, experience, systems, data processing history, computers) to go back into business, with all assets in place, except the ability to buy books at the same prices as Defts. Meanwhile, Intimate has remained in the bookselling business on a reduced scale.
XX. INTIMATE HAS CURRENT EVIDENCE ABOUT DEFENDANTS' ACTIVITIES
To some extent, these lower prices to Defts (effective today) are set forth in the 2001 Red Book (V#2 D), and the 4/01 ABA trial testimony shows that Defts' practices continue. In November, 2001, B&N's Riggio advised the financial press that he learned that Wal-Mart was getting a lower price for books than B&N and that he was going to pressure the Publishers for equally low prices. Also, Intimate's inability to compete at this time with Defts (see preceding two points) is evidence of Defts' current activities. Also, the testimony of the ABA witnesses in the ABA trial for injunctive relief held in April, 2001 is relevant See V#2 E-J.
WHEREFORE, it is respectfully requested that the defendants' joint motion be denied in its entirety.
Carl E. Person (CP 7637)
Barnes & Noble stores offer ... more than 175,000 titles.... [is] one of the country's largest retailers of specialty magazines. ... places to relax and read, comfortable cafes, unique children's sections, music departments and calendars of events featuring author appearances and discussion groups. [V#5 F p2] ... from 10,000 to 60,000 square feet. ... located in high-traffic areas with ample parking... extended shopping hours...seven days a week. ... 60,000 to 175,000 titles. ... wood fixtures, antique style chairs and tables, ample public space, a cafe and public restrooms. ... literary cafes...image of its "super" stores as a community meeting place. ... Music Departments .... Discount Pricing. ... a new aggressive nationwide discount pricing strategy. The current pricing is 40% off publishers' suggested retail prices for hardcover bestsellers, 30% off paperback bestsellers and 20% off select feature titles in [certain] departments.... * * * [V#5 J pp4-5]
Plaintiffs have submitted declarations from the plaintiff bookstores, in which they attest in detail that they frequently and regularly purchase books from the same twenty-seven publishers and three wholesalers from which defendants purchase books. (See DeBruin Decl. Ex. 1.) It also appears to be undisputed that defendants purchase nearly every book that is available on the market. Pamela Bryant of Barnes & Noble testified at deposition that "currently, we stock every title a publisher has to offer." (DeBruin Decl. Ex. 30, Bryant Dep. at 88:17-18.) Roger Stefanski of Borders testified at deposition that "Borders is buying virtually everything in the catalog in order to give the customer the widest possible selection." (Hohengarten Decl. Accompanying Notice of Errata Ex. 51, Stefanski Decl. at 32:9-11.) The trier of fact could reasonably conclude from this evidence that plaintiffs and defendants make reasonably contemporaneous purchases from the same sellers.
'But trade experience in a particular situation can afford a sufficient degree of knowledge to provide a basis for prosecution. By way of example a buyer who knows that he buys in the same quantities as his competitor and is served by the seller in the same manner or with the same amount of exertion as the other buyer can fairly be charged with notice that a substantial price differential cannot be justified. The Commission need only to show, to establish its prima facie case, that the buyer knew that the methods by which he was served and quantities in which he purchased were the same as in the case of his competitor. If the methods or quantities differ, the Commission must only show that such differences could not give rise to sufficient savings in the cost of manufacture, sale or delivery to justify the price differential, and that the buyer, knowing these were the only differences, should have known that they could not give rise to sufficient cost savings.' ...
Under <185> 2(b) of the Robinson-Patman Act, a seller can rebut a prima facie case of violating the Robinson-Patman Act "by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor." 15 U.S.C. <185> 13(b). This "meeting competition" defense "'at least requires the seller, who has knowingly discriminated in price, to show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor.'" Falls City, 460 U.S. at 438 (quoting United States v. United States Gypsum Co., 438 U.S. 422, 451, 57 L. Ed. 2d 854, 98 S. Ct. 2864 (1978). "The defense requires that the seller offer the lower price in good faith for the purpose of meeting the competitor's price, that is, the lower price must actually have been a good faith response to that competing low price." Id. at 439. Thus, "[a] seller is required to justify a price difference by showing that it reasonably believed that an equally low price was available to the purchaser and that it offered the lower price for that reason[.]" Id. at 444.
* * *The Supreme Court "consistently has held that the . . . defense 'at least requires the seller, who has knowingly discriminated in price, to show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor. '".... * * *
"4. Any difference in book price terms to competing book retailers must be justified by, and not exceed, a different in cost to the publisher, or be practicably available to competing book retailers, unless it falls within the meeting competition or changing conditions exception. Before providing any differing price terms based on cost justification, the publisher must reasonably determine and specifically document the rationale and calculations for any cost difference used to justify the difference in price terms. ..."
Federal Rule of Evidence 701 provides: If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue.
Paragraph 26. Injunctive relief for private parties; exception
Dated: New York, New York
. . . . . . . February 11, 2002
Attorney for the Plaintiff
325 W. 45th Street - Suite 201
New York NY 10036-3803
(212) 307-4444