This website collects information relating to the price-discrimination lawsuit [now inactive] brought by The Intimate Bookshop, Inc. v. Barnes & Noble, Inc., Borders Group, Inc., and related corporations in the United States District Court for the Southern District of New York.
At this time, the defendants have moved jointly for a summary judgment; the plaintiff ("Intimate") responded on February 11, 2002 with opposing papers (some of which are available below). A substantial part of Intimate's opposing papers (containing copies, quotes from or references to documents provided by defendants during discovery) was filed under seal and unavailable for public review. A few days later, Judge Pauley ordered that a redacted version (i.e., a version with certain highly confidential material deleted) be filed publicly, which Intimate did (see the links below to Intimate's redacted Memorandum of Law and redacted Local Rule 56.1 Statement).
In reply to Intimate's opposing papers, defendants submitted a 20-page (double-spaced) reply memorandum and a 25-page (single-spaced) set of Objections to the opposing affidavits (or declarations) of Wallace Kuralt, Brenda Kuralt and (son) Charles Kuralt.
Intimate requested that the Court strike the 25-page (single-spaced) set of Objections on the grounds that they together with the 20-page Reply Memorandum of defendants exceeded the Court's order limiting defendants' reply memorandum of law to 20 double-spaced pages. The single spaced Objections amounted to 50 double-spaced pages which, when added to defendants' 20-page Reply Memorandum, amounted to a reply memorandum of 70 double-spaced pages, in violation of the Court's 20-page, double-spaced limitation.
A hearing on defendants' motion for summary judgment and Intimate's motion to strike was held before Judge Pauley on Friday, March 22, 2002. The argument lasted about 1-1/4 hours.
Judge Pauley granted Intimate's motion to strike defendants' 25-page set of Objections for the reasons argued by Intimate, and reserved decision on defendants' motion for summary judgment.
By reason of various stipulations and related court orders calling for the confidentiality of various documents produced by the defendants, most of the discovery obtained by Intimate was not available for Intimate (as a competitor) or the public to see.
By reason of several court orders in February, 2002, the defendants determined which information contained in Intimate's opposing (i) Memorandum of Law and (ii) Local Rule 56.1 Statement of Material Facts in Dispute - should be deleted from the original documents to enable a "redacted" version (eliminating such information) to be filed for public view, and view by Intimate (and officers and in-house counsel for Barnes & Noble and Borders).
These two redacted documents were filed on February 25, 2002, and are available for public review. Copies of such documents (marked up with HTML language) are available, as menu items numbered below.
The first menu item below is an article discussing what RPA attorney Carl E. Person and his clients in the book case (Intimate) and auto-parts case (more than 200 small businesses) refer to as the "DNA Code", which is required to be broken to determine the actual price below invoice price at which the nation's superstores are buying their goods from manufacturers. Person's clients buy at invoice with no reduction as to any of the DNA Code elements as to Intimate or most of the auto-parts clients. Some of the larger auto-parts clients may have some partial reduction of their invoice price by one or more of the DNA elements, but to a substantially lesser extent as to these elements than the superstores with which they are competing.
For those interested in setting a date at which these rebate practices began in earnest, I can think of 3 critical dates: (i) 1/20/81 - the date President Ronald Reagan took office, (ii) 1981 - the year in which Wal-Mart first initiated its policy of refusing to deal with manufacturers' reps [Reagan's permissiveness permit Wal-Mart to allegedly violate the RPA with known impunity and immunity - but many competitors apparently were kept in the dark, resulting in a slew of retail bankrupties thereafter of the nation's leading retail chains competing with Wal-Mart]; and (iii) 10/86 (the date of an industry article "Wal-Mart's War on Reps; Manufacturers' Reps" revealing that Wal-Mart's policy had prevailed.
Wal-Mart's abnormal growth starts with this policy (someone should help me document this fact by comparing percentage increases in Wal-Mart's sales and profits over the years from 1962 - inception - to the present), and is fueled by the policy of extracting lower costs from manufacturers than its competitors were paying for the same goods.
Actually, according to author Bob Ortega in his famous book In Same We Trust (published in 2000 by Random House / Times Business), Ortega states at p. 32, that in 1962, with 16 variety stores, Walton
had hit on some of the basic strategies that would become his hallmarks: ... going straight to the manufacturers whenever possible so he could wangle goods at lower cost....
The purpose of eliminating commission-earning salespersons and manufacturers' reps is not only to obtain a reduction of the manufacturers' price by the amount of the saved sales commission, but to be able to extract additional concessions during negotiations from someone having the authority to make such concessions. As an auto-parts industry person (Joe Mittelman, an auto-parts manufacturer's rep and today a Mfrs' Rep Committee Member of the AAIA) stated to "Automotive Marketing" during a packed meeting held at the October 1986 Automotive Parts and Accessories Show [AAPA] ("to discuss allegations that Wal-Mart has instituted a policy of refusing to see manufacturers reps"),
If the factory succumbs to this pressure, is there a soul in this room who doubts that three, six, nine months later there will be a customer request for an over-and-above special ad allowance, a Sam's birthday allowance?
This was a most prophetic observation of the consequences of Wal-Mart's policy made during October, 1986 (16 years ago). Just look at elements of the DNA Code. The effect has been to drive K-Mart and most other competitors out of business, without anyone fully understanding why.
The two industry articles referred to above are (i) Automotive Marketing (a Chilton Company publication), October, 1986, 1043 words, entitled "Reps say Wal-Mart Nixes Reps; It Says No; Market Line" and (ii) Sales & Marketing Management (Bill Communications, Inc.), March, 1987, 1932 words, entitled "Wal-Mart's War on Reps; Manufacturers' Reps", both available through Nexis, copyright by Information Access Company, a Thompson Corporation Company.
Through elimination of sales persons and manufacturers reps, Wal-mart and the emulators of Wal-Mart (such as Home Depot), the manufacturers' officials who have the power to deviate from manufacturer price lists and pricing policies meet with Wal-Mart and other superstore negotiators and cave in on Wal-Mart's lengthy, expanded and continual demands for invoice-price givebacks in one form or another, all of which become part of the DNA Code uncovered by Carl Person and his clients in the RPA litigation, and very few of which (if any) ever become available to any competitors other than superstore competitors (but as K-Mart has seen, they obviously weren't getting all of the DNA Code elements, especially when choosing to buy all of their food and health and beauty products through a wholesaler, Fleming). If you don't buy direct, and squeeze the manufacturer to the point where the manufacturer is about to go out of business, you can't survive as a retailer in the U.S., even with (or probably because of the burden of having) $40 billion in annual sales without the proper discount to make a profit.
Thus, 1981 through October, 1986 is the important period during which Sam Walton and Wal-Mart notified all persons wanting to do business with (i.e., sell to) Wal-Mart that they had to conduct all negotiations with an officer of the corporation and not a salesman (saleswoman) or manufacturer's representative (who had no authority to change the manufacturer's price list) or make various concessions amounting to a price rebate. This period of attempting to circumvent the RPA by Wal-Mart was like giving one runner a prohibited performance-enhancing drug (often considered to be a steroid) which enables the runner to beat all other runners and win the price, unless caught.
Or to put it another way, one retailer (Retailer A) by complying with the RPA has $10,000,000 in invested capital earning a 10% compound return, and in 30 years is able to turn the $10 million into $174.5 million. But a competitor (Retailer B) obtaining a 20% compound return during the same 30-year period (by taking economic steroids: RPA violations), the $10,000,000 in invested capital becomes $2.374 billion, which is 13.6 times more in value than Retailer A. Of course, Retailer A never had a chance to compete, from the moment it started out in competition with Retailer B. Retailer B's huge value has been taken from the hundreds or thousands of "competing" Retailer A's.
You can check these figures at 10% Compound Table and 20% Compound Table.
Everything else being equal, the retailers which violate the RPA (and especially those which maximize their violations of the RPA) are going to be the winners, and the law-abiding retailers who abide by the RPA rule of law, as well as the law firms, accounting firms, employees and others dependent on them, are going to be the losers and often wind up losing their businesses and working for the winners.
A main argument of apologists for superstores (including major accounting firms, major law firms, and high-priced "experts" in economics) is that superstores are more efficient and deliver price savings to customers and drive the less efficient competitors out of business.
It is true that they drive competitors out of business, but it is not true that these competitors are driven out of business because of any lack of efficiency. In fact, if the superstores and competitors were buying goods at the same per-unit price, the superstores would be driven out of business.
Wallace Kuralt, owner of The Intimate Bookshop, Inc., has demonstrated that superstores in the book industry do not result in lower prices for consumers. See Kuralt's study at Kuralt's March, 2002 Study Entitled "The Nail in the Shoe of the Horse of the General - A Cautionary Tale and a Personal Plea for Action" Showing that Book Purchasers Are Not Getting Lower Prices from Book Superstores
One of the menu items below contains links to recent articles in the online and traditional press which discuss this DNA Code for superstore rebates and let whole industries know about these secret rebates (which are now no longer secret). Another menu item below links to a novel reform proposed by Wallace Kuralt (actually, a proposed state statute) which if adopted could reduce the desire of communities to have a Wal-Mart or other superstore in their own backyard.
Finally, the remaining menu items below have been gathered from various parts of the overall, parent www.lawmall.com website, to provide a quick way for persons interested in the Intimate Bookshop and American Booksellers Association ("ABA") book-related actions against Barnes & Noble and Borders to be brought up to date without having to wade through the entire menu for the RPAMall website Related RPAMall Website.
Carl E. Person, Editor, LawMall, email@example.com