Reiss v. Audible Inc.

Background

CD Reiss, a self-published author who produces audiobooks, brought a proposed class action against Audible, Inc. She asserted monopolization and attempted-monopolization claims under Section 2 of the Sherman Act. The proposed class consists of authors and rights holders who contracted with Audible to sell audiobook titles and paid distribution fees of at least 60 percent. The complaint also proposes a subclass of authors and rights holders who distribute titles through other channels and pay Audible a distribution fee of at least 75 percent.

The complaint alleged that Audible is the dominant audiobook retailer and accounts for more than 60 percent of domestic audiobook purchases. Reiss alleged that Audible maintains that position through a combination of practices, including 90-day exclusivity periods for new releases, long-term exclusive agreements, higher fees for authors who choose competitive distribution, reduced visibility and promotional opportunities for nonexclusive titles, restrictions affecting competing subscription services, agreements involving Apple, and exclusive arrangements for sought-after books and genres.

Audible’s contracts provide for a distribution fee of at least 60 percent for exclusive distribution and at least 75 percent for competitive distribution. Reiss characterized the higher competitive-distribution fee as a penalty for leaving exclusivity. She also alleged that switching to competitive distribution is permanent and that the related price and non-price penalties make exclusive distribution the only rational economic choice for many authors.

Audible’s Motion to Dismiss

Audible moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether a complaint alleges enough facts to state a legally plausible claim. Audible argued that Reiss had not adequately pleaded anticompetitive conduct, an element of both of her Section 2 claims. Audible did not challenge the complaint’s allegations about the definition of the audiobook retail-distribution market or Audible’s monopoly power for purposes of the motion.

Audible also argued that Reiss lacked antitrust standing. Antitrust standing is the requirement that a plaintiff show an injury of the kind the antitrust laws address and be an appropriate person to enforce those laws. Audible contended that its distribution rivals, rather than authors, were the direct victims of the alleged conduct.

Anticompetitive Conduct

The Court rejected Audible’s effort to reduce the complaint to the 90-day exclusivity period in the ACX contracts. The Court said Reiss alleged a broader, multifaceted scheme that included at least five categories of conduct: tying up important books; Audible’s arrangement with Apple; restrictions on subscribers’ ability to use other audiobook services; 90-day exclusivity for new releases; and long-term exclusivity arrangements involving back catalogs and broad portions of particular genres.

The Court explained that allegedly exclusionary conduct should be evaluated as a whole when the conduct forms part of a complex campaign to maintain dominance. The Court first considered the 90-day exclusivity period and then considered it together with the complaint’s other allegations.

The Court concluded that the 90-day period, standing alone, presented a close question about substantial foreclosure—the requirement that exclusive dealing prevent a substantial amount of competition, rather than merely harm some competitors. The Court noted that the ACX provisions applied only to self-published and independent authors, not authors represented by the major publishing houses. But the Court did not need to resolve whether the ACX provisions alone caused substantial foreclosure because Reiss alleged additional exclusionary practices.

Taken together, the allegations were sufficient at the pleading stage to present a plausible theory that Audible’s conduct substantially limited competition. The Court noted that Reiss might have difficulty proving substantial foreclosure later, but held that the complaint contained enough allegations to proceed beyond the motion-to-dismiss stage. The Court also rejected Audible’s arguments that increased audiobook production and the existence of other market entrants defeated Reiss’s theory. Those issues raised factual questions that could not be resolved on a motion to dismiss.

Antitrust Standing

The Court also rejected Audible’s standing argument. Reiss alleged that she and the proposed class members paid Audible the challenged distribution fees directly. The Court found that the alleged overcharges were the type of injury antitrust laws are intended to prevent and that the alleged injury flowed directly from the challenged practices.

Applying the factors used to determine whether a plaintiff is an efficient antitrust enforcer, the Court found that Reiss sufficiently alleged a direct injury, an identifiable group of authors motivated to enforce the law, non-speculative damages, and a manageable damages-allocation issue. The Court distinguished cases involving indirect purchasers or competitors whose injuries depended on several intervening events. According to the Court, Reiss alleged that rival distributors would have pressured Audible to reduce its fees, directly affecting Reiss’s transactions with Audible.

Disposition

The Court denied Audible’s motion to dismiss the complaint. This ruling determined only that Reiss adequately pleaded her claims and had antitrust standing; it did not determine whether Audible ultimately violated the Sherman Act or whether Reiss can prove the allegations. The Clerk was directed to close the motion at docket entry 64.