May 31, 2012
Penguin, Macmillan answer DOJ lawsuit, accuse the Justice Department of siding with “monopolist retailer Amazon”
by Kelly Burdick
Six 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.
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5 Comments
fn.1: “‘Monopolist’ is used throughout for ease of reference”
Penguin rocks!
Hmmm–Penguin’s response may be a “treat” to read, but its length suggests protesting too much. The length is also an excellent strategy: it to be buries the DOJ’s most persuasive points beneath a mass of minutia.
RE: referring to Amazon as “Monopolist”–nice term, but it has no legal bearing. Calling Amazon “Monopolist” in advance of any court ruling on that topic would be like calling Penguin “Price Fixer/Conspirator” before this case is resolved. (Penguin is “Defendant” in the DOJ’s suit). Moreover, saying that Amazon’s “monopoly” justified Penguin’s actions only weakens their case. They cannot make legal judgments and act on them. That’s a corporate version of vigilante justice.Finally, look esp. at the damning evidence in 49 and and 62 in the DOJ’s claim, and Penguin’s weak/evasive responses. Penguin still has much ‘splainin to do!
This is ridiculous defensiveness on behalf of a company everybody in the world but the U.S. government and you, Sir Tom, already recognizes as a textbook example of a monopoly — which certainly is a term with the utmost legal bearing here. This is an antitrust suit, after all. What’s more, the core of Penguin’s response (too long? the DOJ’s filing was massive!) is supported by the Supreme Court itself, in the Leegin Creative decision, which said that price fixing was indeed legal if it encouraged competition, and in the Robinson-Patman Act, which among other relevancies calls out loss-leader retailing as, gulp, monopolistic. In short, it’s the government that’s got some ‘splainin’ to do, as the Penguin filing very concisely makes clear. Pseudonymous astro-turfers like you, well, that needs no further explanation. — Dennis Johnson
I actually thought that Penguin’s reply was rather short and to the point. By the time you get to the end, the repetition of “denied” reads like poetry. In response to Sir Tom’s claim, I don’t think that the Penguin filing’s goal is to describe a kind of vigilante justice, but rather to provide a radically different view of the case, one in which Penguin (and by extension other publishers) are guilty of exactly nothing. As a bookstore owner, I am biased, but Penguin’s response seems to me to be devastating to the DOJ case. If there are a few weaknesses to it, I am sure they’ll be addressed. This is just the second chess move, really. Plenty more to come.
But seriously, this is not a long filing by Penguin. They just answer the government’s case, point by point. I’m not a lawyer, but I’m pretty sure from his post that Sir Tom is even less of a lawyer than I am. He doesn’t even understand this: that Penguin’s use of the word “monopolist” to describe Amazon puts the DOJ in a bind, because they have to respond to it, either by saying that Amazon is not a monopolist or by saying that they are but they don’t care.
Go Penguin!