In its response to recent filings from Apple (s AAPL), publishers and booksellers on its proposed ebook settlement with three publishers, the Department of Justice addresses few specific complaints (PDF; full filing embedded below). Rather, citing the “unmistakable consumer harm that has resulted from the conspiracy in this case,” the DOJ calls on Judge Denise Cote to approve the settlement without a hearing.
Last week, attorney Bob Kohn and the Authors Guild sought permission to act as “friends of the court” in the proposed settlement and filed amicus briefs. We have not yet seen a filing from Judge Cote granting their requests, but both parties are listed as “amicus” on the docket report, along with Barnes & Noble (s BKS) and the American Booksellers Association. However, the DOJ does not respond to Kohn or the Authors Guild in its response.
The DOJ shoots down the argument that ebooks are different from print books but doesn’t elaborate on why they are the same (and doesn’t respond to the criticism that it has failed to take interrelated markets, like those for e-readers, into account). Rather, it says, “Railroads, publishers, lawyers, construction engineers, health care providers, and oil companies are just some of the voices that have raised cries against ‘ruinous competition’ over the decades,” and publishers should not be granted special treatment.
Response to Apple
Last week, Apple argued that the DOJ’s proposed settlement, which it has not joined, affects its interests by forcing it to tear up existing contracts. As such, Apple says it’s entitled to a trial before the settlement is approved. The DOJ says Apple “is not entitled to preclude the United States and Apple’s co-defendants from obtaining the immediate benefits of their settlements, as it is well established that the United States ‘need not prove its underlying allegations in a Tunney Act proceeding.'” (The Tunney Act relates to anti-trust proceedings).
The DOJ claims that “in reality, what troubles Apple is that the decree returns pricing discretion not just to Apple, but also to its retail competitors.”
Response to Penguin
Last week, Penguin argued that the DOJ has not proven that ebook prices across the board rose under agency pricing. Penguin, which along with Macmillan is holding out against the settlement, also provided evidence showing that even prior to agency, Amazon (s AMZN) priced many of its new titles above $9.99.
The DOJ does not respond to this specific point, but rather presents charts (chart 1-PDF, chart 2-PDF) showing that “Penguin did indeed raise its prices as soon as it gained power to do so. “In four weeks spanning the time when Penguin took retail pricing power from Amazon, the average price for a Penguin e-book sold through Amazon increased 17 percent, and the average price for a Penguin ‘new release’ e-book sold through Amazon increased 21 percent.” Here are the DOJ’s charts (1, 2) and accompanying methodology.
Penguin had argued that the DOJ should turn over all of its research on ebook pricing, since that research is apparently the basis for its conclusion that ebook prices rose across the board under agency pricing. The DOJ refuses, citing case law: “There is simply no basis for Penguin’s assertion that the United States must produce internal economic analyses to support its settlement.”
Response to Macmillan
Macmillan echoed Penguin’s demand for the DOJ’s research on ebook pricing and also asked the DOJ to show, as required by antitrust law, that the settlement would not result in Amazon gaining a monopoly. The DOJ responds by saying that there is no evidence that the settlement would result in Amazon gaining a monopoly because of “competition from established companies such as B&N, Google (s Goog), Apple, and Sony (s SNE).”
The DOJ says “the recently announced investment by Microsoft(s MSFT) in B&N’s e-book business, and Sony’s release of a new e-reader, do not reflect any reluctance on the part of sophisticated companies to expand their sales of e-books.”
Response to the ABA and Barnes & Noble
In their amicus brief, the booksellers argued that the number of public comments against the proposed settlement vastly outweighed the number of comments in favor of the settlement. The DOJ responds that “it is not unprecedented for parties to oppose a settlement because they have a stake in an anticompetitive status quo,” and claims “the majority of the comments received opposing the decree did not come from those seeking to represent the public interest, but rather from those that benefited from the conspiracy and that have a vested interest in maintaining the status quo.”