Antitrust Division Responds to Critics of Settlement in E-Book Price Fixing Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Department of Justice Antitrust Division has responded to public comments on a proposed consent decree that would resolve civil allegations against three publishing companies for conspiring to fix the prices of e-books.

According to the Justice Department, the settlement is within the reaches of the public interest and provides effective and appropriate remedies for the antitrust violations alleged in the complaint, with respect to the settling defendants.

On April 11, the Department of Justice Antitrust Division filed a complaint against Apple, Inc. and five of the six largest publishers in the United States for conspiring to fix the sales prices of electronic books or e-books. On the same day, the government filed a proposed consent decree (CCH Trade Regulation Reporter ¶51,006) that, if approved by the court, would resolve allegations against three of the publishers: Hachette Book Group (USA), HarperCollins Publishers L.L.C., and Simon & Schuster Inc.

Public Comments

The Justice Department has posted the 868 comments from individuals, publishers, and booksellers—including Apple—on the Antitrust Division website. In addition, it published in the Federal Register on July 27 the website address at which the public comments may be viewed and downloaded. In June, the federal district court in New York City excused the government from publishing the comments in the Federal Register, in view of the costs associated with such publication.

While publication of the public comments and the U.S. response is required by the Antitrust Procedures and Penalties Act, also known as the Tunney Act, the law was amended in 2004 to permit the Justice Department to make public comments on a consent decree available through means other than the Federal Register.

Opposition to Suit or Settlement

The vast majority of the comments opposed the suit and/or the settlement. According to the Justice Department, most of the opposing comments “came from publishers, authors, agents, and bookstores that acknowledged an interest in higher retail e-book prices.” Comments against the government action came from the American Booksellers Association, The Authors Guild, and e-book retailers Barnes & Noble and Apple.

Approximately 70 of the 868 comments favored the suit and settlement. The Consumer Federation of America, the only consumer group to submit a comment on the decree, was among the supporters.

Goals of Settlement

In responding to the comments, the government explained that the terms of the proposed consent decree are designed to accomplish three things: (1) end the current collusion; (2) restore competition eliminated by that collusion; and (3) ensure compliance. The Justice Department rejected suggestions that the consent decree would impose a business model on the e-book industry by prohibiting agency agreements.

“The limitations placed on the terms of agency contracts entered into by Settling Defendants for a period of two years will break the collusive status quo and allow truly bilateral negotiations between publishers and retailers to produce competitive results,” the Justice Department explained. The government did not object to the use of the agency model, only to the collusive use of agency to eliminate competition.

Restoring Competition

To restore competition to the market, the consent decree would prohibit retail price restrictions and most favored nation pricing clauses for two-year and five-year periods, respectively. While commentors expressed concerns that online retailer Amazon might have the ability to harm competition through sustained low or predatory pricing, the government explained that collusion was not acceptable, even in response to perceived anticompetitive conduct.

The consent decree also contains mechanisms commonly used to ensure compliance with a decree, while minimizing administrative costs. The government took issue with suggestions that the consent decree was either too “regulatory” in nature and therefore overbroad or too vague so that it was unenforceable.

The Justice Department concluded that both opposing and supporting comments had at least one element in common: they agreed that entry of the decree likely will reduce retail prices for e-books, at least in the short term.

The consent decree in U.S. v. Apple, Inc., Case 1:12-cv-02826-UA. The Department of Justice response to the public comments were published at 77 Federal Register 44271, July 27, 2012.