As more brick-and-mortar companies enter the e-commerce market, we may witness how traditional antitrust and trade rules, like the United States (US) Sherman Act and the Clayton Act, apply to e-commerce dealings. Section 1 of the Sherman Act (15 U.S.C.S §1) declares illegal (it is a felony) any restrain of commerce or trade among the states, or foreign nations, through contractual arrangements, trusts, or the like. This provision applies to any 'person,' be it a corporation or an individual. The US Clayton Act (15 U.S.C.S. § 18) precludes any person from engaging in any form of trade that creates monopoly or lessen competition. Hence, an interesting question is this: may significant e-commerce agreements like Mirror Hosting Agreements between big companies trigger application of antitrust laws?
There is not specific US case law justifying the assertion that significant Mirror Hosting Agreements may trigger application of antitrust laws. Yet, some have attempted to obtain such ruling. Mirror Hosting Agreements, also called Co-branded Websites, are agreements between two companies in which one company provides the site content, inventory list, customer service, and general site administration for the other. The terms of these agreements, including pricing, market strategies, etc., vary according to the parties" requirements. We have not yet witnessed any colossal Mirror Hosting Agreement sufficient to stand an antitrust claim; but, this does not mean we will not. Because e-commerce is so rapidly expanding and high tech websites are very expensive to develop and maintain more companies are resorting to co-branded websites to continue their e-presence and avoid losses or high costs associated with website maintenance. An example of this is the Mirror Hosting Agreement, or co-branded website, between Amazon.com and Borders.com.
Amazon.com and Borders.com signed a Mirror Hosting Agreement in which Amazon.com would provide the inventory listing, website content, costumer service, sales, etc., to Borders.com. The contract stipulated that Amazon.com would select the books offered, their prices, and the terms of the sales. An exception was made for those books purchased online and available for in-store pickup; their prices could be set directly by Borders.com. 2 years of online sales losses and high website costs seemed to be the reasons for Borders.com resorting to this Mirror Hosting Agreement. In 1999, Borders.com had reported online sales of $17.9 million and losses of $17.2 million, and in 2000, Borders.com reported online sales of $27.4 million and losses of $29.7 million.
According to this Mirror Hosting Agreement, Amazon.com was the actual seller of the books sold through this agreement and could retain the profits of these transactions. Borders.com paid Amazon.com a one-time fee for website activation and received commission for each sale through this co-branded site. So, what was wrong? An individual consumer filed a lawsuit in California alleging that this Mirror Hosting Agreement between Amazon.com and Borders.com violated § 1 of the Sherman Act and § 7 of the Clayton Act, among other statutory state laws (Gerlinger v. Amazon.com, Inc., 311 F. Supp. 2d 838. (2004). The Court dismissed the antitrust claims and ordered briefing as to the consumer's standing in this lawsuit.
The Court denied plaintiff's assertion that Amazon/Borders agreement was a per se price fixing violation. The Court reasoned that the Mirror Hosting Agreement's provision on pricing was not a per se price fixing violation, and following BMI, a Supreme Court case, (Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1), the Court held: "Not all arrangements among actual or potential competitors that have an impact on price are per se violations of the Sherman Act or even unreasonable restraints. In order for a court to apply the per se rule, a plaintiff must convince the court that an agreement threatens the central nervous system of the economy, that is, competitive pricing."
Plaintiff also alleged that Amazon/Borders Mirror Hosting Agreement had provisions that amounted to a Horizontal Market Division. Plaintiff argued that by allocating the online sales of books to Amazon.com and leaving Borders to sale books online in their brick-and-mortar stores, they had ‘divided' the online bookselling market. The Court held that it had insufficient evidence on this issue to make a final determination.
Regarding violation of §7 of the Clayton Act, plaintiff argued that the Mirror Hosting Agreement between Amazon and Borders constituted an ‘acquisition of the assets' within the meaning of §7 of the Clayton Act. Plaintiff further explains that some provisions of the agreement transferred ownership of Borders.com to Amazon.com. Amazon.com and Borders.com argued that there is not transfer of ownership in this Co-branded website. Instead, Amazon agreed to independently designed, host, operate, and maintain a new website accessible through Borders.com. The court did not address this issue because it held that the plaintiff failed to demonstrate the anticompetitive effect of the Amazon/Border agreement.
The antitrust arguments against this specific Mirror Hosting Agreement did not succeed. Yet, the case sets a good precedent about how a Federal court would analyze an antitrust claim against one of the most popular e-commerce agreements of this high tech era. The wording of the Amazon/Border agreement definitely played a major role in this case and the fact that the online sales of books had greatly declined during the time of this lawsuit.
