Apple, Publishers, E-book Price Fixing — and Effective Assignments of Claims

The antitrust ruling finding Apple engaged in anticompetitive behavior with regard to the e-book industry has resulted in a number of follow-up suits by parties allegedly harmed by Apple and its co-conspirator publishers’ price-fixing scheme. Now, one of the first cases to be filed has reached the end of its line, derailed by the lack of an assignment clause with sufficiently explicit wording.  

In the Southern District of New York, DNAML Pty, Ltd. v. Apple Inc., 13cv6516 (DLC) (behind a paywall), the plaintiff’s claims were rooted in antitrust, but it was ultimately contract law that decided the case. The problem arose because the DNAML who sued Apple and the publishers here is actually “new” DNAML. “New” DNAML is not the same entity that was damaged by the anticompetitive conduct here; that was “old” DNAML.  

In 2010, “old” DNAML entered into the agency agreement with the publisher Hachette that gave rise to the cause of action here. That agency agreement, according to the allegations, was disastrous for “old” DNAML, as the anticompetitive measures adopted by Apple and the publishers did their job and eliminated “old” DNAML’s ability to effectively compete by requiring that Hachette strictly control all e-book pricing. Consequently deprived of distinguishing itself from all of the other sellers of e-books in any way, “old” DNAML got out of the e-book business a few months after signing the agreement, in September 2010. 

Over a year later, on December 23, 2011, “old” DNAML executed a contract under which it transferred all of its assets to “new” DNAML. Under the agreement, “new” DNAML purchased the “Business and Assets” of “old” DNAML. “Business” was defined as “the business carried on” by “old” DNAML, “being the business of owning and operating eBook technologies, including the sale of eBooks.” “Assets” was defined as “all of the assets” owned by “old” DNAML and “used in connection” with its business, “including its cash, the Book Debts, the DNAML UK Shares, the Business Agreements, Leasehold Property interest, Equipment, Intellectual Property, and the Goodwill.” After the execution of the agreement, “old” DNAML allegedly still existed but had no active business. 

In July 2013, Apple was found liable for antitrust violations in the e-book market. In September 2013, DNAML filed this lawsuit. Apple and the publishers argued that summary judgment should be entered in their favor because “new” DNAML lacked the standing to pursue the antitrust claims, which were inflicted upon “old” DNAML. The court agreed. 

“New” DNAML agreed that it could not sue Apple and the publishers absent an assignment of the antitrust claims from “old” DNAML. The court found that the antitrust claims could have been assigned, but that the agreement here failed to do so: 

To effect a transfer of the right to bring an antitrust claim, the transferee must expressly assign the right to bring that cause of action, either by making specific reference to the antitrust claim or by making an unambiguous assignment of causes of action in a manner that would clearly encompass the antitrust claim.

No such express assignment existed here, either of antitrust claims or of claims in general. The definitions of “Business” and “Assets” did not include claims. A transfer merely of assets is not sufficient to act as an assignment of antitrust claims.

“New” DNAML tried to argue that the purchase of “old” DNAML’s “Business” “unambiguous[ly]” included an assignment of the antitrust claims because of the reference to “old” DNAML’s sale of e-books. “New” DNAML argued that should be read to include any claims arising out of that business. But the court stated that was not the express assignment of claims that the law requires. 

“New” DNAML also tried to introduce extrinsic evidence to support its argument that the agreement was intended to include antitrust claims, but the court, having found the agreement unambiguous on its face, refused to use extrinsic evidence to alter its interpretation.

As a result, “new” DNAML never acquired “old” DNAML’s standing to bring the suit, and the court dismissed DNAML’s claims with prejudice.  

The moral of the story: Mention “claims” explicitly in your asset purchase agreements.