PublishAmerica, LLLP (Publish America) v. Lightning Source Inc. (LSI)

DreamWeaver

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If you read LSIs response in full you see which paragraphs they admit are true. Including that they signed a contract stipulating that only wholesale returns would be charged, then charged all returns regardless of orgin. Which is pretty outrageous, really.

LSI admits they even took as return books sold by PA, so PA was paying a refund to LSI when LSI hadn't sold the book in the first place. Unless LSI can allow an accurate audit, how can they charge a fair fee?

Again, I suspect this is an area where POD technology may demand evolving accounting techniques to deal with significant publisher-direct sales--certainly LSI needs to fix that. On the other hand, why didn't PA request an audit instead of instituting a half-baked sting operation that, if they had any experience of returns, they would have known would be inconclusive? All LSI has to do is say, it was economically more feasible to print new copies for us, and we never imagined a publisher who wanted to resell their returns wouldn't prefer to have new books.
 

M.R.J. Le Blanc

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Plus, if LS is really in the wrong here, that could stain their reputation. Lots of publishers use LS, right? Why would they do something to risk that? Unless by admitting in their defense that some of PA's claims are correct it's them owning up to their mistakes, in a hey-we-were-willing-to-work-this-out kind of way. And we know PA's penchant for telling off and scaring off people with threats. Maybe they didn't anticipate LS would actually allow this to go through the court systems and just pay them out of court to keep the whole thing quiet.

It's all very odd.
 

ChristineR

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My thought was that LSI took returns of books that they didn't distribute because bookstores deal with LSI/Ingrams, not PA. They charged $2 for the expenses of receiving the books and either recycling them or passing them back to PA. LSI didn't deal with the question or who printed the books or who distributed them to the bookstores--they just knew that their contract authorized them to accept returns on behalf of PA.

Ultimately, I doubt if LSI has any way of knowing who printed or distributed a returned book. This would be true for books in general, not just PA books.

The only thing I don't understand is why LSI printed copies of books (for return to PA) that they already had a bookstore returned copy of. The only things I can think of is that the bookstore copies were spoiled, or that LSI had already recycled them, or that it was just easier to recycle everything and include returns in the batch of books being printed and returned to PA.
 

kaitie

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Okay, clarify something for me here. Lightning source was printing/distributing the books, right? So even if someone ordered from PA directly, wouldn't they still have been the one printing the book for PA? I guess I don't really see how they're in the wrong for charging for books from the PA site. Isn't the PA site considered basically the way any other bookstore would be considered? Or is the issue that they were asking for money on books that PA actually printed itself on their handy-dandy printer?
 

M.R.J. Le Blanc

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All I know for sure is that PA is either hella sure of their case, or they flubbed up by hiring lawyers who have no experience in business litigation. That one just boggles my mind.
 

kaitie

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My first thought was that I wondered if they were getting screwed over by allowing returns (maybe they figured they wouldn't get many?) and started trying to think of a way to recoup that and thought the whole "These look too new" thing was a valid argument. Or maybe what someone mentioned earlier was right and they just are seeing scams everywhere because it's the kind of thing they would do themselves. I do find it interesting, however, that for so long they wouldn't allow any kind of returns, and now when they make them somewhat available they're having this kind of problem. Or hell, they weren't making enough money to pay their own bills and thought this was a better way of dealing with it?
 

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Somewhere in PA is an office filled with thousands of books. I feel sorry for the person who gets stuck with unpacking and listing each book and author. To me it sounds like LSI said "You want your returns? Okay, trucks coming now."

I thought it was fascinating PA asked for a jury trial.
 

James D. Macdonald

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Let's go through LSI's response to see exactly what they admitted:

Plaintiff Publish America, LLLP ("PA" or "Plaintiff") is a Maryland Limited Liability Partnership, with its principal office and place of business located in Frederick, Maryland.
PA has used independent contractors to print some copies of its books.
Defendant Lightning Source, Inc. ("LSI" or "Defendant") is a Delaware Corporation, with its principal office and place of business located in La Vergne, Tennessee. LSI prints books for publishers like PA.
Except that Defendant's correct name is Lightning Source Inc.

LSI agrees that jurisdiction and venue are proper in this Court.
On or about June 1, 2005, PA and LSI entered into a "Print on Demand Agreement" (hereinafter referred to as the "Agreement"). A copy of that agreement, which was signed by both parties, is attached hereto as Exhibit 1 and incorporated herein. LSI's Print on Demand Publisher Operating Manual (hereinafter referred to as the "Operating Manual") was incorporated into and formed a part of the Agreement.
LSI admits that a copy of the Operating Manual is attached to the Complaint as Exhibit 2.
The term of the Agreement was for one year. However, the parties agreed to continue their relationship through the filing date of this Complaint by assenting to a series of print on demand contracts of approximately one year each ("renewal terms").
LSI states that the terms and conditions of the original Print on Demand Agreement and those Print on Demand Agreements executed during any "renewal periods" speak for themselves.

LSI states that the terms of PA's Print on Demand Agreement, including, but not limited to, the terms of the Operating Manual, which were incorporated therein (hereinafter collectively "Agreement"), speak for themselves.

LSI admits that it filled Wholesale Orders and Publisher Direct Orders pursuant to the Agreement, that PA designated some titles as returnable, and that LSI disposed of returns and charged PA for those returns in accordance with the parties' Agreement.

LSI admits that in or about May 2009, and consistent with PA's "Yes-Deliver" return designation, it began shipping to PA a physical copy of each title returned in exchange for a $2 shipping and handling fee and the wholesale cost of the title in question as instructed by PA.

LSI admits that it printed a physical copy of each book upon the return of the title and shipped such copies to PA.

LSI also admits that the copies that it shipped to PA were in newly-printed condition.

LSI admits that, pursuant to the express terms of the parties' Agreement, it accepted returns of PA titles that were the subject of the Agreement, and it further admits that the returns may have included titles that were not sold by LSI.

LSI admits that, on October 7, 2009, PA notified LSI that it would like to lower the prices of 33,069 titles.

LSI admits that it notified PA that the price changes would become effective by November 1, 2009, if PA provided all information required to process the change request by October 10, 2009.

LSI admits that, in accordance with the parties' Agreement, it accepted returns of titles that may have included books that had not been printed by LSI.

Under the parties' Agreement, LSI agreed that PA would receive a physical copy of a book upon the title being returned in the event that PA designated the "Yes-Deliver" returns option.

LSI admits that PA paid a $2 charge for each copy of the titles returned that were shipped back to PA (in addition to a charge for the wholesale cost of the title in question) pursuant to the Agreement and Operating Manual.

LSI agreed that PA would receive a physical copy of each title returned in the event that PA designated the "Yes-Deliver" return option.

LSI states that, with respect to all books that PA designated for return under the "Yes-Deliver" option, LSI printed a physical copy of the book upon the return of the title and shipped it to PA.

LSI...states that, in accordance with the Agreement and Operating Manual, PA received a physical copy of each title returned that PA designated under the "Yes-Deliver" return option.

LSI admits that, pursuant to the terms of the Agreement, PA was charged $2 per return (in addition to the wholesale cost of the book) for every title designated under the "Yes-Deliver" option.

LSI agreed that PA would receive a physical copy of each title returned in the event that PA designated the "Yes-Deliver" return option.

LSI states that, with respect to all books that PA designated for return under the "Yes-Deliver" option, LSI printed a physical copy of the book upon the title’s return and shipped it to PA.

LSI...states that, in accordance with the Agreement and the Operating Manual, PA received a physical copy of each title returned that PA designated under the "Yes-Deliver" return option.

LSI admits that, pursuant to the terms of the Agreement, PA was charged $2 per return (in addition to the wholesale cost of the book) for every title designated under the "Yes-Deliver" option.

LSI states that sales compensation reports that LSI sent to PA accurately reflected charges for returns in accordance with the parties’ Agreement.

LSI further states that it processed returns and charges for titles returned in accordance with the parties’ Agreement.

LSI states that sales compensation reports that LSI sent to PA accurately reflected charges for returns in accordance with the parties’ Agreement.

LSI further states that it processed returns and charges for titles returned in accordance with the parties’ Agreement.

--------------

Everything else is denied.
 

James D. Macdonald

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Here is Lightning Source Inc.'s Print on Demand Publisher Operating Manual, ver. 4.12.

On page 27 of 29:

Yes-Deliver
Select this designation if you want to allow your titles to be sold on a returnable basis
and you would like to receive a physical copy of the book upon its return. If you
select this option, you will be charged for the current wholesale cost of each book
returned, plus a $2.00 per book shipping and handling charge. LSI does not
guarantee the condition of the book being returned.

On page 28 of 29:

CHANGING YOUR RETURNS OPTION
LSI allows publishers to change their return designations at any time after initial title submission with 45
days prior written notice. Notice should be provided to your designated client services representative.
If a publisher decides to change the terms of a title from either “Yes-Deliver” or “Yes-Destroy” to “No”,
then LSI will provide notice of the change in terms to all booksellers that purchase books from LSI
within the 45-day notice period. Booksellers will continue to have the right to return books to LSI for a
period of 180 days from the date notice is provided to the booksellers, and the publisher will continue to
have the obligation to reimburse LSI for the wholesale cost of the books being returned, plus any
applicable shipping and handling charges. If a publisher decides to change the status of a title from
“Yes-Deliver” to “No” please be aware that any books returned during the 180 day period will be
handled pursuant to the “Yes-Destroy” designation.
If a publisher decides to change a title from “No” to “Yes-Deliver” or “Yes-Destroy”, LSI will allow
booksellers to return said titles immediately from the date notice is provided to the bookseller. The
publisher should be aware that booksellers may return unwanted or overstocked books from the
effective date of the change, regardless of when the books were originally purchased. Consequently,
publishers should be prepared for the consequences of changing historically non-returnable books into
returnable books.

IMPACT OF CANCELING A TITLE
Publishers have the right to cancel titles placed into our print on demand program at any time, provided
that written notice has been provided to your designated client services representative. As titles are
cancelled, LSI will provide notice of the cancellation to all booksellers that purchase books from LSI,
and LSI will not accept any further orders from any bookseller for cancelled titles. However,
cancellation of a title does not relieve the publisher from returns liability on a title. If a title is designated
as either “Yes-Deliver” or “Yes-Destroy” on the effective date of a title cancellation, or was so
designated within up to the 180-day period prior to cancellation, the publisher will still be liable for the
wholesale cost of returns, and any related shipping and handling fees, for a period of 180 days
following title cancellation. If a publisher decides to cancel a title that was previously designated as
“Yes-Deliver”, please be aware that any books returned during the 180 day period will be handled
pursuant to the “Yes-Destroy” designation.

On page 29 of 29:
REPORTING AND FINANCIAL SETTLEMENT OF RETURNS ACTIVITY
The wholesale cost of all returns received by LSI from booksellers, plus any applicable returns shipping
and handling charges, will be deducted from the publisher’s compensation for sales in the month that
the returns are received from the bookseller (in the case of “Yes-Destroy” titles) or the month that the
return is shipped to the publisher by LSI (in the case of “Yes-Deliver” titles).
At the end of each fiscal month, LSI will post the net amount earned by the publisher (publisher
compensation earned, as defined above, less the cost of returns) in that month to our accounts payable
system. Said net amount earned will be paid in accordance with the payment terms contained in our
print on demand agreement. For “Yes-Deliver” titles, LSI may choose to hold returns, and not charge
the publisher for said returns, until an economical shipping quantity of total returns are received for all
of the publisher’s returnable titles.
Publisher will be charged for the wholesale cost of returns at the wholesale price that is active in our
system on the date that the return is processed.
If returns received in a given month exceed sales by an amount that causes LSI’s payables balance to
the publisher to become negative, LSI reserves the right to send the publisher an invoice for the
balance due to LSI, and the publisher has an obligation to pay LSI for the amount invoiced.
Publishers may check the sales and returns activity of any or all titles at any time by logging into our
publisher secure web site at www.lightningsource.com
 

kaitie

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Wow...after that what's everything else lol? :tongue
 

ChristineR

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Okay, clarify something for me here. Lightning source was printing/distributing the books, right? So even if someone ordered from PA directly, wouldn't they still have been the one printing the book for PA? I guess I don't really see how they're in the wrong for charging for books from the PA site. Isn't the PA site considered basically the way any other bookstore would be considered? Or is the issue that they were asking for money on books that PA actually printed itself on their handy-dandy printer?

Yes, LSI was asking for money for books that PA printed themselves, or possibly were printed elsewhere. They were accepting returns (probably from bookstores) for books that they didn't print.

Keep in mind that bookstores don't check each copy of a book to see who printed it--they just send it back to their distributor, which, in this case, would be Ingrams/LSI.

Some bookstores actually accept returns of books they didn't sell. You can do this with a book you got for Christmas and will never read. You get a store credit for a book you want, and the store sends the book back to Ingrams.
 

M.R.J. Le Blanc

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So then is this really more of a case of PA not remembering the terms of their own contract with LSI and is accusing them of wrongdoing? *still trying to get the whole picture*
 

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No -- PA had the contract right Imho. There is fault it seems on both sides. PA is not automatically wrong about everything, guys. This is reality not a melodrama.
 

Duncan J Macdonald

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No -- PA had the contract right Imho. There is fault it seems on both sides. PA is not automatically wrong about everything, guys. This is reality not a melodrama.
Hi! I'm from the Government, I'm here to help!

Without actually seeing the signed agreement, and only reading from the quoted portion of the Operator's Manual, LSI agreed to provide a physical book to the publisher for the Yes-Deliver option. Nowhere in there can I see anything stating that they were actually going to pass along the returned books themselves. The fact that they stipulate that they cannot guarantee the condition of a returned book covers them here.

Somewhere along the line, someone assumed that any return that LSI shipped would actually be the returned book.

As for accepting returns for books not physically printed by LSI -- where in the contract/agreement or manual does it stipulate how anyone is supposed to know who printed the book that was returned?

PA, meet petard. Petard, meet PA.
 

James D. Macdonald

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Unless LSI hired a crime lab to do forensic analysis of the glue in the binding, they couldn't tell whether they'd printed a given book or not. And, really, a returned book is a returned book. If they have the same ISBN, it doesn't matter where it was printed.

The agreement, as I read it, was that LSI would send a book to PA for each copy returned, not that they would send the returned book to PA.

One of the side-effects of this suit is that PA may have to reveal how many copies of their authors books have, in fact, sold.
 

HapiSofi

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Hi! I'm from the Government, I'm here to help!

Without actually seeing the signed agreement, and only reading from the quoted portion of the Operator's Manual, LSI agreed to provide a physical book to the publisher for the Yes-Deliver option. Nowhere in there can I see anything stating that they were actually going to pass along the returned books themselves. The fact that they stipulate that they cannot guarantee the condition of a returned book covers them here.

Somewhere along the line, someone assumed that any return that LSI shipped would actually be the returned book.

As for accepting returns for books not physically printed by LSI -- where in the contract/agreement or manual does it stipulate how anyone is supposed to know who printed the book that was returned?

PA, meet petard. Petard, meet PA.

And:

Unless LSI hired a crime lab to do forensic analysis of the glue in the binding, they couldn't tell whether they'd printed a given book or not. And, really, a returned book is a returned book. If they have the same ISBN, it doesn't matter where it was printed.

The agreement, as I read it, was that LSI would send a book to PA for each copy returned, not that they would send the returned book to PA.

One of the side-effects of this suit is that PA may have to reveal how many copies of their authors books have, in fact, sold.

Sounds to me like Duncan and Jim have the right of it. LSI was being paid by PA to handle their returns. PA was having some of their books manufactured by LSI, and manufacturing some themselves. The editions were casually indistinguishable. If PA wanted LSI to handle returns of PA-printed copies in some other fashion, they should have differentiated their editions.

(Aside: I've always assumed the reason PA bought a print-and-bind setup was precisely so that they could confuse the issue of how many copies of a given book had been manufactured, and by whom.)

It's not inappropriate for LSI to charge PA for handling returns on books they didn't print. They're providing a valuable service. If PA wanted a different deal for LSI handling returns of PA-printed copies, they should have made a separate deal. I'm not seeing evidence of that.

LSI agreed to take returns and, if requested, ship physical copies of the book in question back to the publisher. I'm not seeing language that specifies that returned copies be the same identical copies they received as returns. In any normal publishing operation, this would be an acceptable course of action. In fact, it would be advantageous: no more having to sort out damaged copies from reshippable ones!

Here we come to what I think is a separate issue: PA had never seriously considered what real returns amount to on an underperforming book. In this regard they're oddly similar to Ellora's Cave, which also balked when they saw the returns they were getting. Ellora's Cave sued a bookstore chain. PA is suing their printers/distributors.

Moments like this make me wish I spoke Old Norse or Anglo-Saxon, so I could get the necessary starkness into this:
Let them learn / / what returns look like:
Grave-mounds of cartons / / barrows of books.
The brisk businesslike tone you hear from people who work in conventional publishing, which many mistake for heartlessness, is in part a strategy for coping with the sorrow of once-hopeful books coming home unsold.

PA balked, and refused to believe the numbers. My guess is that LSI had already pulped those cartons of returns, retaining only the records of the numbers of copies of each book. When PA demanded physical returns, LSI shrugged, printed them up, and sent them to PA.

I strongly suspect that this isn't the first time in the history of publishing that a distributor, accused of keeping dishonest records, has responded by shipping the returns directly to the publisher's offices. It's not something you'd volunteer to have happen to you twice, unless you really believed in the truth of your accusations.

Now PA's suing. They think they're clever with contracts. LSI is a subsidiary of Ingram, a bloodstained old distributor with decades of experience and a lawyer to match. We'll see how this comes out.

If those of you who've worked in the industry think you can hear me saying "Deathmatch, Publish America vs. subsidiary of Ingram! What's not to like?" -- well, yes.
 
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veinglory

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If LSI could not determine which editions were wholesale surely they also should not have signed a contract that specifically stipulated returns for wholesale books only. They should not sign a contract to do something they are not able to do. They knew they were not the only printer for these editions, and they knew they were agreeing not to take returns except for wholesales copies.

PA is, well, PA-and I think the sewed the wind and reaped the returns. But I just do not see LSI as completely blameless and above board here. They signed the contract, they broke the contract--and it sure looks to me like they may have tried to conceal what they were doing if PA was clear about why they wanted returns shipped to them.
 
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James D. Macdonald

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LSI admits that it filled Wholesale Orders and Publisher Direct Orders pursuant to the Agreement, that PA designated some titles as returnable, and that LSI disposed of returns and charged PA for those returns in accordance with the parties' Agreement.

I think that covers your objection, Veinglory. I can't tell for sure without seeing the whole of the agreement between them, but I don't see where you're finding LSI to have broken the contract.

With the agreement in hand it'll be a matter for the lawyers. I do think that PA is outgunned and outclassed in that regard.

I think the reason that PA's demanding a jury trial is they think they can confuse twelve random strangers. Publishing is murky and counter-intuitive. Still, I wouldn't put money on their winning this one. I believe that PA is just as confused as any of those twelve strangers might be.
 

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Publisher fails to see the full implications of contract with distributor, is dissatisfied with later developments? Film at eleven.
 

HapiSofi

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Publishing is a set of interlocking, highly idiosyncratic systems that pass inputs and outputs to each other. For years now, PA has pretended to be a publishing company while not doing 90% of the job. I think they forgot that they don't really know what they're doing. Now they've experimentally stuck a tentacle into the actual clockworks of the industry, and -- surprise! -- they've gotten caught in the gears and are getting run through them backward.

From everything I'm hearing, PA signed a distribution contract with LSI that didn't specify that copies printed by PA were to be handled differently from copies printed by LSI. It also didn't specify that copies sent to the publisher as whole-copy returns had to be the identical copies received as returns, as opposed to copies of the same editions of the same titles. That last is a new wrinkle, but it should have occurred to them that it was a possible implication of having their distribution handled by their printer.

I'm sorry if they failed to grasp this basic fact of life, but distributors don't play softball.
 

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If LSI could not determine which editions were wholesale surely they also should not have signed a contract that specifically stipulated returns for wholesale books only. They should not sign a contract to do something they are not able to do. They knew they were not the only printer for these editions, and they knew they were agreeing not to take returns except for wholesales copies.

It also depends upon when that contract was signed. After all, PA didn't start printing until after they initiated returns among their books. I'm betting that it was signed before PA actually got into printing their authors' books. If so, then LSI is probably blameless for accepting PA printed books along with those that LSI had printed.


When you mess with lightning, you risk becoming a crispy critter.
 
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spike

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My interpretation of this is that LSI may have accepted returns that were printed by PA. They don't say that they did, just that they may have. As Uncle Jim said, it would be hard to tell who printed what.

I see the problem arising where a PA author orders 20 copies, and has bookstores order 20 copies. 15 are returned, and PA is insisting that it is their 15 that were returned, not LSIs.

Problem with that is that I doubt a bookstore would return books it stocked from an author. Wouldn't they have it in their computer that it was on consignment from the author? Otherwise, how could the author get paid if the book was sold? I know a few self published and POD authors. The bookstores in my area are happy to stock one or two copies that the author supplies. (I've discussed this before on these boards. I live in an highly populated area with many bookstores) But if they got them from the author, they cut a check to the author if it is sold. If they decide it won't sell, they give them back to the author. Even if the books are available from a distributor. I don't think many bookstores order directly from PA (non returnable) when they can order through Ingrams (returnable),

Another point is that all LSI has to do is show the paper trail of where books were shipped to, and where they were shipped back from. That will prove their case. If LSI and Ingrams don't have good records, well then they deserve to lose this case.

I think that PA is thinking that:

1. Everyone practices shady business dealing, because PA does
2. There can't be that many order for their books.

The real downside is that this case may cause problems for other PODs who want to offer returns (not sure if any do). To prevent this kind of litigation distributors (like LSI) might require different ISBN numbers, or increased record keeping to know which books came from authors and which came directly from the printer. If this burden falls on the bookstores, I can see them saying it isn't worth the trouble.
 

ChristineR

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My interpretation of this is that LSI may have accepted returns that were printed by PA. They don't say that they did, just that they may have. As Uncle Jim said, it would be hard to tell who printed what.

I see the problem arising where a PA author orders 20 copies, and has bookstores order 20 copies. 15 are returned, and PA is insisting that it is their 15 that were returned, not LSIs.

Problem with that is that I doubt a bookstore would return books it stocked from an author. Wouldn't they have it in their computer that it was on consignment from the author? Otherwise, how could the author get paid if the book was sold? I know a few self published and POD authors. The bookstores in my area are happy to stock one or two copies that the author supplies. (I've discussed this before on these boards. I live in an highly populated area with many bookstores) But if they got them from the author, they cut a check to the author if it is sold. If they decide it won't sell, they give them back to the author. Even if the books are available from a distributor. I don't think many bookstores order directly from PA (non returnable) when they can order through Ingrams (returnable),

Another point is that all LSI has to do is show the paper trail of where books were shipped to, and where they were shipped back from. That will prove their case. If LSI and Ingrams don't have good records, well then they deserve to lose this case.

I think that PA is thinking that:

1. Everyone practices shady business dealing, because PA does
2. There can't be that many order for their books.

The real downside is that this case may cause problems for other PODs who want to offer returns (not sure if any do). To prevent this kind of litigation distributors (like LSI) might require different ISBN numbers, or increased record keeping to know which books came from authors and which came directly from the printer. If this burden falls on the bookstores, I can see them saying it isn't worth the trouble.

In the scenario you propose, I bet the bookstore would declare that the first twenty books sold were the author's consignment. Two reasons.

First, if the consigned books are discounted (by the author) at 50% or thereabouts, the author gets fifty percent and the bookstore gets 50%, and the author subtracts whatever she actually paid for the books. The author ends up with more money that way, which is fine with the bookstore people.

Second, the PA discount was no discount at all, something like 5-10%. For these books, the bookstore gets 5%, the author gets 8% of 95%, and PA gets 92% of 95%. So the bookstore would also get more off the consigned books, and would be inclined to do it this way.

I think LSI has to win this one, and the reason is that in order for them to truly be manufacturing returns, they'd have to be colluding with bookstores. Otherwise, the records won't match up. LSI wouldn't be in business very long if the were caught, and even they were colluding with a store, they wouldn't exactly be raking the bucks at $2 per book unless there's a chain of bookstores out there which was returning thousands and thousands more books than every other comparable store.
 

circlexranch

Terri Coop has been known to write
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I thought it was fascinating PA asked for a jury trial.

Sorry gang, no great mystery here. You ALWAYS demand a jury trial in your initial pleading in federal court. If you don't ask then, the option is gone forever. It would be unethical and sloppy for the attorney drafting the complaint to omit this and lose the possibility, even if you don't want a jury within ten miles of your case.

Less-than-good lawyers also think it sounds tough and intimidating (good lawyers laugh at this reason for the demand)