The Justice Department's antitrust settlement with Hachette BookGroup, Simon & Schuster and HarperCollins has been greeted about
as warmly as a skunk at a backyard barbecue. On Monday, the
government filed its response to the comments it has received on
the deal. Of the 868 public comments submitted as part of the
statutory process for evaluating an antitrust settlement, fewer
than 70 letter writers supported the deal, which calls for the
publishers to end their alleged collusion with Apple (and
everyone else) and subject future pricing agreements to Justice
Department review. The other 800 comments, from several
bookseller and author groups as well as Apple, opposed the
settlement as misguided meddling that will end up hurting
readers and the publishing industry.
Most of the objectors argue that by suing Apple and five
book publishers, the Justice Department ignored the real villain
in the e-books market: Amazon. (Apple and the two publishers
that didn't settle with the DOJ have made similar arguments in a
private e-books antitrust class action against them.) The
publishers have long claimed that when Apple proposed an agency
pricing model in which publishers set their own prices for
e-books and Apple takes a cut of book sales on the iPad, it was
a chance to break Amazon's below-cost wholesale pricing model,
which publishers regarded as a path to monopoly.
The Justice Department received a chorus of objections on
that theme. According to Monday's filing, many opponents of the
proposed settlement "claimed that the pre-conspiracy lower
e-book prices were caused by predatory conduct of Amazon and
that the proposed final judgment would allow Amazon to lower
prices once again, which could lead to an Amazon monopoly. These
comments suggested that the current industry equilibrium, even
if collusively attained, is preferable to the competitive
dynamic that preceded it, and that the United States erred both
in suing the conspirators and in agreeing to a settlement
designed to restore competition."
It turns out, however, that the Justice Department has
already investigated allegations that Amazon engaged in
predatory pricing with the intention of driving out competition.
The antitrust division's new filing revealed (for what appears
to be the first time) that Amazon was investigated -- and
cleared -- as part of the e-books probe. "In the course of its
investigation, the United States examined complaints about
Amazon's alleged predatory practices and found persuasive
evidence lacking," the government said. "No objector to the
proposed final judgment has supplied evidence that, in the
dynamic and evolving e-book industry, Amazon threatens to drive
out competition and obtain the monopoly pricing power which is
the ultimate concern of predatory pricing law."
Collusion, according to the Justice Department, is never the
appropriate response to fears of monopoly, particularly when the
conspiracy results in higher prices, which was the alleged
outcome in the e-books case. "By colluding, defendants learned
that they shared a common goal to raise e-book prices, agreed to
use particular tools to achieve that goal, found those tools to
be effective and found each other reliable in the application of
those tools," the filing said. "It is appropriate, therefore, to
restrict defendants' ability to use the tools that effectuated
the conspiracy."
The Justice Department, you won't be surprised to hear,
called on U.S. District Judge Denise Cote of Manhattan to
approve the proposed settlement despite the 800 comments in
opposition, arguing that most of the comments were self-serving
and that the deal is in the public interest. The best evidence
of that, according to the government, is in signs of increased
competition in the still-developing industry, including
Microsoft's $300 million investment in Barnes & Noble's e-reader
business.
(Reporting by Alison Frankel)
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