DOJ Defends EBook Settlement

by Wendy Davis, Jul 23, 2012, 4:13 PM

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When the Department of Justice sued Apple and five book publishers for allegedly violating antitrust laws by conspiring to end Amazon's $9.99 per download pricing, not everyone cheered the move.

The Authors Guild, Barnes & Noble and others argued that the DOJ had taken the wrong side. Those organizations argued that Amazon was on the cusp of monopolizing the nascent ebook market, and would have done so if Apple hadn't forged an agreement with book publishers to move to an agency model. The agency model used here called for publishers to set the prices and give retailers a 30% commission.

Previously, publishers operated on a wholesale model, meaning that they sold books outright to companies like Amazon; those companies in turn resold the books at whatever price they wished. Amazon reportedly took a loss on bestsellers in order to price them at just $9.99 a download -- a rate that was good for consumers, but not so good for rival bookstores.

The same day that the DOJ filed suit, the agency and three publishers -- Hachette, HarperCollins, and Simon & Schuster -- announced they had reached a settlement. (Macmillan and Penguin were also named in the lawsuit). 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.

That settlement drew opposition from the Authors Guild, Barnes & Noble and others. They argue that the settlement will do more harm than good. Barnes & Noble says the deal "imposes a regulatory regime that punishes only third parties and consumers."

The Authors Guild adds that the settlement "needlessly imperils brick-and-mortar bookstores while it backs an online monopolist."

Today, the DOJ filed papers asking U.S. District Court Judge Denise Cote in New York to discount those objections and approve the proposed settlement with Hachette, HarperCollins, and Simon & Schuster.

The feds say they don't object to the agency method in principle, but "to the collusive use of agency to eliminate competition and thrust higher prices onto consumers."

The DOJ also argues that collusion isn't legal, regardless of whether the companies accused of colluding believe they've been victimized. "Even if there were evidence to substantiate claims of 'monopolization' or 'predatory pricing,' they would not be sufficient to justify self-help in the form of collusion," the government argues.

The DOJ also downplays the concern that Amazon will end up monopolizing ebooks -- arguing that the market is so new that it defies predictions. "The future is unclear and the path for many industry members may be fraught with uncertainty and risk," DOJ argues. "But certainly there is no shortage of competitive assets and capabilities being brought to bear in the ebooks industry."

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