Judge Quickly Approves Ebook Pricing Settlement; Says It's In The Public Interest To Stop Price Fixing

from the will-prices-drop? dept

Judge Denise Cote wasted no time at all in approving the DOJ's settlement with three book publishers in its antitrust lawsuit over ebook pricing. While there had been some concerns about the settlement, the judge saw no problem with it at all, and very quickly issued an order approving the settlement (pdf) between the government and HarperCollins, Simon & Schuster and Hachette (the case against others, and Apple continues). The terms of the settlement are straightforward:
  1. They must terminate their Agency Agreements with Apple within seven days after entry of the proposed Final Judgment.
  2. They must terminate those contracts with e-book retailers that contain either a) a restriction on the e-book retailer’s ability to set the retail price of any e-book, or b) a “Price MFN,” as defined in the proposed Final Judgment, as soon as each contract permits starting thirty days after entry of the proposed Final Judgment.
  3. For at least two years, they may not agree to any new contract with an e-book retailer that restricts the retailer’s discretion over e-book pricing.
  4. For at least five years, they may not enter into an agreement with an e-book retailer that includes a Price MFN.
Cote basically said that this is a perfectly straightforward price fixing case, and the settlement directly counteracts the price fixing issues, so there's no reason not to just move forward with it.
The Complaint and CIS provide a sufficient factual foundation as to the existence of a conspiracy to raise, fix, and stabilize the retail price for newly-released and bestselling trade e-books, to end retail price competition among trade e-books retailers, and to limit retail price competition among the Publisher Defendants. Although the Government did not submit any economic studies to support its allegations, such studies are unnecessary. The Complaint alleges a straightforward, horizontal price-fixing conspiracy, which is per se unlawful under the Sherman Act.... The Complaint also details the defendants’ public statements, conversations, and meetings as evidence of the existence of the conspiracy. The decree is directed narrowly towards undoing the price-fixing conspiracy, ensuring that price-fixing does not immediately reemerge, and ensuring compliance. Based on the factual allegations in the Complaint and CIS, it is reasonable to conclude that these remedies will result in a return to the pre-conspiracy status quo. In this straightforward price-fixing case, no further showing is required.
Because of this, Cote rejects the idea of any evidentiary hearing and just approves the deal. She notes that due to tons and tons of public comments that were allowed in the case, she is quite well informed of the issues and sees no additional benefit from such a hearing:
It is not necessary to hold an evidentiary hearing before approving the decree. Given the voluminous submissions from the public and the non-settling parties, which describe and debate the nature of the alleged collusion and the wisdom and likely impact of settlement terms in great detail, as well as the detailed factual allegations in the Complaint, the Court is well-equipped to rule on these matters. A hearing would serve only to delay the proceedings unnecessarily.
She does try to summarize the comments against the settlement into four broad categories: (1) that the settlement would harm third party players like indie book stores, indie ebook retailers, indie publishers and authors, (2) that the settlement is "unworkable," (3) that there weren't enough facts to support the price fixing claim, (4) that the impact of such price fixing was actually pro-competition, in that it broke up Amazon's market dominance. She then breaks down each of these arguments to show why none of them apply and the settlement should move forward.

I won't go through all four issues, but I would like to focus on the two that get the most attention, the first and the last. On the first issue, she points out that antitrust law is not designed to protect businesses from the working of the market, but to protect the public from the failure of the market. If the settlement causes some businesses to suffer, but it's in the public interest, there is no problem there.
If unfettered e-books retail competition will add substantially to the competitive pressures on physical bookstores, or if smaller e-book retailers are unable to compete with Amazon on price, these are not reasons to decline to enter the proposed Final Judgment.
As for the last issue (breaking up Amazon's dominance), she notes that it was "perhaps the most forceful species of criticism" but still does not find it persuasive here. The court more or less notes that Amazon's market position isn't on trial, and its use of wholesale pricing does not equal price fixing, as some have alleged. Nor does it show "predatory" pricing, which was a key complaint. The problem there: the evidence showed that Amazon was "consistently profitable." And, to show predatory pricing, "one must prove more than simply pricing below an appropriate measure of cost" but also that the company will jack up prices down the road. And all of the comments failed to do that:
None of the comments demonstrate that either condition for predatory pricing by Amazon existed or will likely exist. Indeed, while the comments complain that Amazon’s $9.99 price for newly-released and bestselling e-books was “predatory,” none of them attempts to show that Amazon’s e-book prices as a whole were below its marginal costs.
Oh, and finally, the court points out that swinging back the blame to Amazon is meaningless for the purpose of this case, anyway, because even if the court accepted that Amazon was price fixing too, that doesn't make it okay for the publishers to price fix themselves. Think of it as the "two wrongs don't make a right" rule.
Third, even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing. Congress “has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies.” ... The familiar mantra regarding “two wrongs” would seem to offer guidance in these circumstances.
This probably does not bode well for the other publishers and Apple who are fighting the whole thing...


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Tim K (profile), Sep 6th, 2012 @ 12:14pm

    but to protect the public from the failure of the market

    Now if other judges could figure out that the laws are made to protect the public and not industries maybe we could start getting more good news.

    Also, can't wait to see what happens with the lawsuit. Hopefully Apple along with the remaining publishers (one of which one of my favorite Author unfortunately uses) will quickly lose.

     

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  2.  
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    Anonymous Coward, Sep 6th, 2012 @ 12:43pm

    It's always nice to read about a judge who seems to know what they're talking about.
    These days it seems everyone in charge of anything significant hasn't a clue how it works.

     

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  3.  
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    SheriffFatman, Sep 6th, 2012 @ 12:46pm

    What's "marginal cost" for an e-book?

     

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  4.  
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    SheriffFatman, Sep 6th, 2012 @ 12:46pm

    What's "marginal cost" for an e-book?

     

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  5.  
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    monkyyy, Sep 6th, 2012 @ 12:47pm

    "Says It's In The Public Interest" i dont buy it, there must be something else at play, maybe the judge doesnt want to take another copyright case ever again

     

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  6.  
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    monkyyy, Sep 6th, 2012 @ 12:47pm

    "Says It's In The Public Interest" i dont buy it, there must be something else at play, maybe the judge doesnt want to take another copyright case ever again

     

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  7.  
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    SheriffFatman, Sep 6th, 2012 @ 12:47pm

    What's "marginal cost" for an e-book?

     

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  8.  
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    monkyyy, Sep 6th, 2012 @ 12:48pm

    "Says It's In The Public Interest" i dont buy it, there must be something else at play, maybe the judge doesnt want to take another copyright case ever again

     

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  9.  
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    Anonymous Coward, Sep 6th, 2012 @ 12:48pm

    Cool, in other news, I might be buying a lot more ebooks in the future.

     

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  10.  
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    That One Guy (profile), Sep 6th, 2012 @ 12:49pm

    Re:

    Given how quickly the settlements were worked out, as long as they keep the same judge, and I don't really see any reason not too, then yeah, the holdouts will probably find themselves wishing they'd just settled before long.

     

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  11.  
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    SheriffFatman, Sep 6th, 2012 @ 12:49pm

    Aargh, triple post. (At least it's not just me.)

     

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  12.  
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    monkyyy, Sep 6th, 2012 @ 12:49pm

    Re:

    tri-pl-pl-ple post
    u ready need to to fix whatever causes this

     

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  13.  
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    monkyyy, Sep 6th, 2012 @ 12:50pm

    Re:

    nope just u, u caused my triple post by slowind down the system

     

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  14.  
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    Anonymous Coward, Sep 6th, 2012 @ 12:52pm

    Re:

    Pennies. Basically it's just the cost of the electricity and bandwidth.

     

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  15.  
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    Mike Masnick (profile), Sep 6th, 2012 @ 12:53pm

    Re:

    What's "marginal cost" for an e-book?


    The marginal cost *for Amazon* is whatever the publisher is charging. That's the marginal cost being talked about here.

     

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  16.  
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    Josh in CharlotteNC (profile), Sep 6th, 2012 @ 12:53pm

    Re:

    Close enough to zero that the difference is meaningless.

     

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  17.  
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    Anonymous Coward, Sep 6th, 2012 @ 12:57pm

    this judge needs to be involved in cases concerning the entertainment industries. it would be very beneficial as well if Beryl Howell received a bit of coaching as well. that in itself could result in a lot of changes

     

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  18.  
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    Anonymous Coward, Sep 6th, 2012 @ 1:00pm

    none of them attempts to show that Amazonís e-book prices as a whole were below its marginal costs.

    As marginal costs on computerfiles (such as e-books) are just about $0, 'below marginal costs' would most likely mean 'givin money away' with each download.

     

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  19.  
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    Phillip (profile), Sep 6th, 2012 @ 1:19pm

    Re: Re:

    Not true, that's the cost to duplicate it. It costs amazon x.xx per copy to the publisher plus "about 0" to themselves for storage/bandwidth. So as long as they are charging x.xx + 0/y they are making marginal cost

     

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  20.  
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    Anonymous Coward, Sep 6th, 2012 @ 1:51pm

    Re: Re:

    "Whatever the publisher is charging" is actually a very interesting number. Particularly because: If the publisher can charge whatever price they want for a product, why don't the prices vary more?
    In this case it is "shady dealings". What would be realistic alternative explanations?

     

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  21.  
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    Zos (profile), Sep 6th, 2012 @ 2:01pm

    i just can't get over the idea that ten dollars was decided to be too low. lmao.

     

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  22.  
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    Zos (profile), Sep 6th, 2012 @ 2:02pm

    err, i put that badly..that the entire argument is about ten bucks being too low, when it doesn't even approach what i'm willing to pay for a digital file.

     

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  23.  
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    Anonymous Coward, Sep 6th, 2012 @ 2:09pm

    Re:

    Prior art? But that's too haaard.... *whines*

     

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  24.  
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    Anonymous Coward, Sep 6th, 2012 @ 2:21pm

    Re: Re:

    Jay Wilson came in and tripled it, then doubled it.

     

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  25.  
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    Travis, Sep 6th, 2012 @ 2:46pm

    Confused

    I'm sorry, maybe it's the migraine I have today. But what's the bottom line here? Are ebook prices finally going to come down from the ridiculous prices they're at these days? A brand new ebook that's on the new release shelf should NOT be $10.00 each. Is this going to change?

    That's all I care about.

     

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  26.  
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    Brad Hubbard (profile), Sep 6th, 2012 @ 3:25pm

    Re: Confused

    All that happened today is that a judge said "The settlement with these three publishers prevents them from controlling the retail price of their books, and entering into any such contracts in the future for a period of time"

    Will this lower prices? Potentially. Will it drastically changed things? Not for a little while. We still have the main court case w/ Apple and the other two non-settling publishers to decide if Apple's "Agency Pricing" constitutes price-fixing.

     

    reply to this | link to this | view in thread ]

  27.  
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    Josh in CharlotteNC (profile), Sep 7th, 2012 @ 7:30am

    Re: Re: Re:

    Yeah, I had a longer answer, but couldn't get the phrasing to sound right. Then Mike beat me to it, anyway.

     

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  28.  
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    JR Tomlin, Sep 7th, 2012 @ 10:50am

    Re: Re: Confused

    It will have some immediate affects since they are three of the major publishers and publish a huge number of books. The prices on theirs will change in very short order. That leaves RH (who was not a co-conspirator) and two other publishers with inflated prices. When the other publishers sales climb because of competitive prices, the remaining conspirators are going to hurt.

     

    reply to this | link to this | view in thread ]

  29.  
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    Zos (profile), Sep 7th, 2012 @ 5:23pm

    i'm still not understanding. they were ALREADY pricing above amazon, and amazon is pricing far too high, so net result is nothing changes on our end? Honestly we could use an article that breaks down precisely what this means to the end user.

     

    reply to this | link to this | view in thread ]


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