(CN) - A federal judge allowed a new wrinkle in Abbey House's e-book price-fixing case against Apple and six publishers by ruling that the e-book seller must face counterclaims by Simon & Schuster that it encouraged readers to strip copyright protection software from titles as it was going belly-up.
Abbey House - which once did business as BooksOnBoard before it went out of business in 2013 - sued Apple and five leading publishers earlier this year, claiming that a price-fixing conspiracy killed competition and forced it out of business.
The bookseller claims that before Apple's iPad went on sale in 2010, the publishers met over fears that Amazon's $9.99 price point for e-books would "disrupt" the industry. Those discussions led to distribution agreements with Apple that not only raised the price of e-books by $3 to $5, but also forced other booksellers to accept the model in order to keep selling books.
According to Abbey House, the loss of its competitive e-book pricing and Apple's 30 percent cut forced the shuttering of BooksOnBoard - and its antitrust lawsuit.
But publishing giants Penguin and Simon & Schuster fought back, filing counterclaims that as BooksOnBoard was sinking it urged its customers to disable the digital rights management software - ostensibly so readers could transfer their purchases to other devices.
The publishers say this also enabled copyright infringement, with Penguin specifically claiming that "e-books from which DRM protection was stripped were distributed freely to other consumers," although neither Penguin nor Simon & Schuster identified specific titles where this occurred.
Given the lack of proof that actual infringement occurred, U.S. District Judge Denise Cote ruled last week that Abbey House cannot be held liable for either contributory copyright infringement or inducing infringement of the publishers' titles. But encouraging readers to strip the DRM software could have been a breach of contract on Abbey House's part, she said.
In the case of the contract with Simon & Schuster, Cote wrote that "a single contract describes the obligations of Simon & Schuster, Abbey House and the digital fulfillment provider," in this case a third party appointed by the publisher but paid for by Abbey House. "The contract required Abbey House's disclosures to be consistent with its terms and required Abbey House to promptly advise Simon & Schuster of any removal of DRM protection."
However, Penguin lacked a similar term in its contract with Abbey House. The publisher instead relied on a separate term that required Abbey House to condition purchase and use of the e-books it sold on the end user's agreement to abide by content usage rules - which limited the purchaser to personal, non-commercial use on up to six devices as allowed by the DRM software.
"The Penguin counterclaim does not allege that Abbey House failed to abide by this provision when it sold e-books to its customers," Cote wrote. "The provision essentially required Abbey House to communicate to purchasers that a sale of a Penguin e-book was conditioned on an agreement to use the e-book on no more than six computers, with no limitation imposed on the number of e-readers. Nothing in the Abbey House announcement breaches that requirement."
The judge continued: "The announcement was directed to e-books previously purchased through Abbey House and suggested a way in which the purchasers could continue to read those e-books on newly purchased devices despite the presence of DRM protection. Since the content usage rules allow a customer to use an e-book on 'an unlimited number' of e-readers, the counterclaim does not plausibly plead that the announcement violated the obligation of Abbey House to condition use of e-books on the customer's agreement to abide by these terms."
The Justice Department has already taken its own crack at Apple and the publishers in a lawsuit filed in 2012. The publishers settled with the government before trial, but Apple lost in a bench trial in June 2013.
Ruling in that case, Cote said that "Apple and the publisher defendants shared one overarching interest - that there be no price competition at the retail level. Apple did not want to compete with Amazon (or any other e-book retailer) on price; and the publisher defendants wanted to end Amazon's $9.99 pricing and increase significantly the prevailing price point for e-books." (Parentheses in original.)
Hachette, HarperCollins and Simon & Schuster also paid $69 million to settle a similar lawsuit filed by 54 states, territories and the District of Columbia in 2012.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.