Barnes & Noble: Ebook Settlement Threatens Competition

by Wendy Davis, Jun 7, 2012, 5:53 PM

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The Justice Department's proposed settlement of an antitrust lawsuit about ebook pricing “threatens to destroy competition in this young thriving industry,” Barnes & Noble argues in court papers filed today.

The book retailer joins the Authors Guild in opposing the proposed deal, which was announced the same day the Justice Department filed suit against Apple and five publishers.

The DOJ alleged that Apple and the publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- conspired to increase the price of bestsellers from Amazon's $9.99-per-download rate. Specifically, the authorities allege that Apple forged a deal with five book publishers to move to an "agency" model from a "wholesale model." That agency model called for publishers to set prices and give retailers a 30% commission.

Before the shift, booksellers like Amazon purchased books at wholesale and resold them at whatever price they wished. That system, in effect until 2010, allowed Amazon to sell books at a deep discount (and gain a huge market share), but potentially hurt other retailers who balked at matching Amazon's discounts.

Three of the publishers who were sued -- Hachette, HarperCollins, and Simon & Schuster -- agreed to settle the complaints. The deal calls for those companies to end their current contracts with Apple, and also end contracts with other retailers that limit their ability to offer discounts. The publishers can renegotiate those contracts, but can't prevent the retailers from offering discounts for at least two years

Apple, Macmillan, and Penguin are fighting the charges.

Barnes & Noble argues in its court filing today that the settlement creates a new regulatory system that will harm other it as well as book purchasers. "If the aim here is to end collusion, the proposed settlement should enjoin collusion and punish the purported colluders," the company argues. "By contrast, the proposed settlement here imposes a regulatory regime that punishes only third parties and consumers."

Barnes & Noble also points out that when it first started selling ebooks, in 2009, competing with Amazon's $9.99 pricing proved difficult. But the following year, after the publishers moved to an agency model, Barnes & Noble was able to gain market share. “Agency has eliminated an artificial price point, enabling new competitors, including Barnes & Noble, to gain  a presence in the industry and encouraging others to enter,” the company argues.

The Authors Guild makes many of the same points. Earlier this week, that group called on members to oppose the tentative settlement. “The proposed settlement is not in the public interest, because it needlessly imperils brick-and-mortar bookstores while it backs an online monopolist and discourages competition among e-book vendors and e-book device developers,” the group said in a blog post earlier this week.

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