Judge Cote Invalidates Mandatory Arbitration Clause in eBooks Antitrust Case

Yesterday, Judge Cote denied Penguin's motion to stay the proceedings and compel arbitration in the eBook antitrust class action. We previously discussed the substance of plaintiffs' allegations here. In its motion, Penguin pointed to mandatory arbitration clauses in the terms of use for the Amazon and Barnes & Noble eBooks, which included explicit class action waivers. The Amazon Kindle Terms of use provide, for example:

Any dispute or claim relating in any way to your use of the Kindle, Reading Applications or Kindle Store, or the goods or services sold or distributed by Amazon or through the Kindle, Reading Applications or Kindle Store, will be resolved by binding arbitration.

You and Amazon each agree that any dispute resolution proceedings will be conducted only on an individual basis and not in a class, consolidated or representative action.

In declining to enforce the arbitration provisions, Judge Cote held (relying on the Second Circuit's 2009 opinion in "Amex III")  that the arbitration provisions should not be enforced, because plaintiffs adequately showed that enforcement would preclude any action seeking to vindicate plaintiffs federal statutory rights:

Plaintiffs’ affidavits demonstrate that it would be economically irrational for any plaintiff to pursue his or her claims through an individual arbitration.

Judge Cote dismissed Penguin's suggestion that plaintiffs could effectively pool resources and share costs, noting:

This argument blinkers reality. The size of the prospective class in this case is enormous. Even if plaintiffs could share experts, these experts would still need to testify at each of potentially thousands or more individual arbitrations and be paid accordingly. Moreover, even if Penguin’s suggestion were practically feasible -- which it is not -- the Second Circuit noted in Amex I that “plaintiffs must include the risk of losing, and thereby not recovering any fees” when evaluating prospective costs. Id. Penguin has not demonstrated how plaintiffs could rationally account for this risk of losing and still go forward with individual arbitrations that will net them, at most, an average of $540.