May 31, 2012

Penguin, Macmillan answer DOJ lawsuit, accuse the Justice Department of siding with “monopolist retailer Amazon”


Image credit: CBS NewsSix weeks after the Department of Justice filed an antitrust suit against Apple and five of New York’s Big Six publishers, the two standing publisher defendants, Penguin and Macmillan, formally answered Justice department charges of price fixing in extensive legal filings. (HarperCollins, Hachette, and Simon & Schuster settled before the suit was even filed. Apple filed its own reply to the DOJ suit last week, per this MobyLives report.)

The real treat is the filing from Penguin (PDF here). The company’s answer to the DOJ suit is an energetic and wide-ranging defense of its negotiations with Apple and subsequent move to the agency model.

The filing begins by defending the agency model itself, which it claims “has specifically been found by the U.S. Supreme Court to be a legitimate way to do business.” (A strategy that MobyLives predicted might be used.) And it then bluntly declares the reasons why Penguin decided to work with Apple under agency terms. For one, it needed a way to combat the power of Amazon, which is amazingly referred to throughout the filing as the “monopolist retailer Amazon.” The DOJ itself is accused of ignoring the complexity of the ebook business and instead siding “with a monopolist.”

Amazon’s Kindle platform, in Penguin’s view, raised a significant barrier to entry to the ebook market, with online and brick-and-mortar book retailers being effectively shut out of an emerging market. Kindle, Penguin further alleges, locked consumers into a proprietary platform, and its practice of “loss-leading” sales further consolidated the company’s grip on the ebook business.

In reference to the DOJ-alleged anti-competitive effects of the agency pricing model, Penguin argues that price competition has not ceased “under the agency model; it has simply moved to the manufacturer (publisher) level with regard to publishers that have adopted that model.” Amazon’s model of selling at $9.99, Penguin says, was hardly a model at all, it was a strategy that involved nothing “other than selling product at a loss.”

Penguin admits to understanding the difficulties of breaking away from Amazon: Penguin had “extensive experience with Amazon that convinced Penguin that dealing with a new and credible retailer like Apple would probably provoke serious retaliation by Amazon.” Penguin also points out that Amazon itself had demanded “most favored nation” provisions in its contracts, a key charge against Apple, which got a version of a “most favored nation” clause in its iBookstore contracts.

Macmillan’s reply (PDF here) is more subdued. It claims that Macmillan also worried about the “monopolization of the ebook business,” but flatly states that its negotiations with Apple were “bilateral.”

As to DOJ allegations that the six largest publishers hatched their conspiracy to raise ebook prices at a series of secret dinners, twice held in a private room at the Picholine restaurant in Manhattan, Macmillan notes simply that “For the record: Macmillan did not conspire with other publishers in New York City restaurants.” The dinners, instead, were “social in nature…. No conspiracy was hatched over any such dinner.” The dinners are also contested in Penguin’s reply to the DOJ: according to Penguin, “potential joint venture proposals” (such as aNobii, Project Muse, and Bookish) were discussed, but the meetings were “social in nature.”


Kelly Burdick is the executive editor of Melville House.