Resistances to DOJ Argue the Public Doesn’t Want the Settlement

Is the settlement really in the best (long term) interest of consumers?

Yesterday was the deadline for filing statements in opposition to the proposed settlement in the price fixing case between the Department of Justice and three publishers:  Hachette, HarperCollins, and Simon & Schuster.  The focus of the resistances by the publishers Macmillan and Penguin were that the DOJ had failed to provide economic analysis in support of the settlement.  Macmillan argued that the DOJ should be required to prove that the settlement won’t send the ebook market back into the control of Amazon. Penguin asserted that the underlying allegation of the DOJ – that prices have increased under Agency pricing – has not been proved by the DOJ and that the DOJ should be required to provide economic analysis of its allegations.

Apple took a slightly different tack.  It argued that by nullifying the contracts between it and the three publishers, Apple was being penalized without a fair hearing.  Apple urges Judge Cote to either delay in the ruling or not approve the ruling at all, arguing that its trial in 10 months will be in short enough time as to prevent harm to any parties.

All three suggested that the public interest was well voiced by the nearly 900 comments to the DOJ’s proposed settlement and that over 90% of those comments objected to the DOJ settlement.  In dismissing the public’s comments, Apple argued “the Government gave its critics the back of the hand with the message that the Government, not the people operating day-to-day in the market, knows what best serves the public interest.”

The Authors’ Guild filed a motion requesting Judge Cote accepts its amicus, or friend of the court, brief.   Its argument is that the DOJ hasn’t evaluated the harm to all of the relevant markets. This is an issue that Judge Cote deemed to be one of the alleged motivations for conspiracy.   She recounts in her denial of the non settling defendants’ motions to dismiss the following:

The Publisher Defendants feared that low-cost eBooks sales would cannibalize sales of physical books, especially hardcovers, eat into publishers’ profit margins, and harm brick- and-mortar retailers.  They also feared that in the future, Amazon might use its market power to reduce publishers’ share of the profit margins for eBooks.  Most fundamentally, the Publisher Defendants worried that Amazon’s low price point would condition consumers to believe that a book was only “worth” $9.99, and that this consumer expectation would exert powerful downward pressure on prices for eBooks and physical books alike. In the face of these pricing pressures, the Publisher Defendants feared that their business model would prove unsustainable over the long term.

The question the Court must answer is whether the DOJ settlement is in the best interest of the public, and generally, the public is deemed to be consumers.  All of the parties suggest that consumers, like the majority of the other commenters, object to the settlement.  However, according to the DOJ’s assessment only about 40 of the comments were by consumers and most, if not all, were in support of the settlement.

Judge Cote has already determined that the DOJ has pled sufficient facts for a per se violation of the Sherman Antitrust Act.  The only real defense to a per se violation is that the parties didn’t engage in collusion.  That Amazon was bad or that brick and mortar stores might falter if Agency pricing isn’t enforced aren’t viable arguments in defense of a per se accusation of price fixing.  Judge Cote may be  persuaded more by the agreement of three of the six defendants to the settlement than the three in opposition.

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