(But it was a firmware issue)
If they won't accept their argument back as grounds for an exchange, you could always try reasoning with them, since you have not put it in a bag or put anything heavy on it.
If it was damaged somehow while in a normal usage scenario, then you can argue the device was flawed when you purchased it. Especially if there's no outward signs of physical damage. If Borders wouldn't warranty it, you can try going to an ombudsman or possibly kobo@twitter, since i believe someone with the same issue got a good outcome from that.
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