Just days before a court ruling forces major publishers to tear up ebook contracts, a prominent attorney has asked to suspend the proceedings until an appeals court can weigh in on a price-fixing settlement between the U.S. Department of Justice and three publishers.
In documents filed late Friday, Bob Kohn asked U.S. District Judge Denise Cote to stay her ruling on the grounds that consumers will be irreparably harmed by new e-book prices if the settlement goes forward.
Cote approved the settlement last week as a means to fix what she concluded to be blatant price-fixing by Apple and the publishers. The arrangement calls for Simon & Schuster, Hachette and HarperCollins to truncate their contracts with Apple (s aapl) by this Friday and to notify other ebook retailers that they are no longer bound by contracts that set a minimum price for ebooks.
What this means in practice is that, within weeks, mega-retailer Amazon (s amzn) will be able to resume selling ebooks at bargain basement prices, including below cost.
Kohn, Apple and two other publishers had urged Cote to hold off approving the Justice Department settlement until the price-fixing issues could be addressed at a trial next summer. In a surprise move last week, however, Cote threw aside planned court hearings and said the settlement could go into effect.
Kohn, a prominent entertainment industry lawyer, now says that the process should be halted until it goes before the Second Circuit Court of Appeals. If Cote doesn’t grant a stay, he says, “consumer welfare” will be harmed immediately as the new ebook prices will take effect and shift pricing power to Amazon. He also points out that, if the Second Circuit ultimately sides with the Justice Department, ebook buyers will not be hurt; they can simply collect more money under a proposed compensation scheme that proposes to pay them between 25 cents and $1.32 per overpriced ebook.
In an interesting tactical shift, Kohn appears to acknowledge that the publishers did in fact collude to fix prices but that the price-fixing was not illegal. Until recently, publishers have denied that they conspired.
This suggests that the publishers who did not settle are now putting all their hopes on a Supreme Court decision that held that price collusion is not illegal in the case of market failure. The argument is based that on the idea that Amazon, with a 90 percent ebook market share, was a monopsony (a single buyer with all the power) and that publishers had to take a one-time step to fix that.
Kohn first made the argument in a remarkable comic-strip he submitted to the court last week:
Judge Cote will rule on Kohn’s request for a stay in the next few days. According to Peter Toren, a veteran federal court litigator, Cote will almost certainly turn down the request. Toren added that this will pave the way for the settlement opponents to make an urgent request for a stay to the Second Circuit.
If the Second Circuit also rejects the stay, it’s effectively game over. This is so because it would take the Second Circuit many months to address the settlement itself — and, by that point, the new ebook prices will have gone into effect and changed the market.
Here is Kohn’s stay request with some relevant parts underlined: