Here’s How I See the Anti-Trust Settlement

Barnes & Noble submitted a brief today to the DOJ with their commentary on the anti-trust settlement proposed by the DOJ as part of the prosecution of the Agency Six, the 5 major publishers and Apple who conspired to bring about the Agency pricing model for ebooks. I was asked to pick apart the B&N submission to the DOJ, and while I plan to do that I first want to write about how I viewed the three-ring circus the antitrust settlement, massive state-level lawsuit, and ongoing DOJ lawsuit involving 3 of the Agency Six.

I've largely ignored  the ongoing antitrust lawsuit as well as the many editorials about the case (aside from a few early posts).  I had to for the simple reason that I cannot stand the arguments being presented.

It does not matter what words were used because at their core, many of the editorials argued that the Agency model should be allowed to continue. The writers have their various reasons to argue this position, but  it doesn't matter what they say. In my mind all of the arguments in favor continuing the agency model boil down to a single unspoken point:

Let the conspirators get away with the crime.

The Agency Six conspired to bring about the Agency pricing model and force Amazon to accept it - this we can say beyond a shadow of a doubt, given that 3 of the conspirators have already settled. So what all of the editorials in favor of keeping the Agency model are really saying is that we should allow the confessed criminals to keep the prize that they conspired to get.

Folks, it really is that simple.

As part of the settlement, the DOJ is blocking the Agency model because the conspirators cannot be allowed to keep their ill-gotten gains. It does not matter whether or not you or anyone else is harmed by the end of the Agency model. What matters is that the conspirators not be allowed to succeed.

If even a hint of the agency model were allowed to stand then it would be like punishing a child for stealing candy while letting him continue to eat the candy. That makes no sense, not on any level.

Yes, it's going to upset the market, and yes, it's going to let Amazon have fun with the ebook prices.  Arguments could be made that this is bad, but I'm sorry but it doesn't matter.  The first and foremost issue here is that the conspiracy be stopped, and thus the Agency model has to go with it.

I can understand why some are afraid of Amazon (though I do think you're psyching yourselves out), but if and when the bad times come you cannot blame Amazon for acting in their own best interest. You cannot blame the DOJ for prosecuting the conspiracy. No, the death of the agency model must be laid at the feet of the conspirators.

And that is how I see it (though it did take me this long to express the ideas in words).

About Nate Hoffelder (11379 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader: "I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

21 Comments on Here’s How I See the Anti-Trust Settlement

  1. The Agency model can be reinstated after 2 years. The DOJ has said it is legal.

    The publishers earn higher revenues without the Agency model. Their punishment will be higher profits.

    The government will now determine what retailers can charge and how they must operate.

    • The punishment for the settling trio is the fines, the liability to the class action suits (note the plural) and five years of monitoring. That last by itself is going to seriously cramp their style. The non-settling ones are exposed to far harsher penalties if and when sentencing time arrives.

      They may or not make more money when all is said and done but the ebook business is going to be pretty mature before they can again meddle in the retail side of the business. If ever. And for the control freaks at the BPHs that alone is major punishment.

      • The fines will be passed on to consumers, retailers, authors and their own employees through layoffs.

        • The feds will be monitoring their retailer contracts so scratch consuers and retailers off the list.
          That leaves authors–who are already getting ripped off by conspirators–and the employees–at least some of whom knew of the conspiracy and didn’t blow the whistle. Unfortunately for them antitrust only protects consumers, not producers.

          • Unscratch the consumers and retailers. Sorry but the settlement says that the publishers can return to wholesale pricing. Which is higher agency-like prices without the agency. Instead of offering 55% discounts off list they may only give 50%.

  2. “If even a hint of the agency model were allowed to stand then it would be like punishing a child for stealing candy while letting him continue to eat the candy. That makes no sense, not on any level.”

    I think it would be more like forcing the child to take back the portion of the candy he already sold to his little brother and eat that as well.

    Think about why the publishers wanted the agency model in the first place. It surely wasn’t because they simply enjoy sacrificing their own profit margins and listening to customers complain about high e-book prices- those were side effects.

    The publishers’ goal was to encourage competition in the ereader space- i.e. forcing Amazon, Barnes and Noble, Kobo and everyone else to subsidize hardware rather than dropping the price of ebooks. This already happened. The publishers ate their candy.

    Apple did it so that Amazon, Barnes and Noble, et. al. would create develop Ipad apps rather than keep their ebooks proprietary to their own hardware. Apps that they immediately turned around and demanded a revenue cut from. This too already happened, Apple ate that candy.

    The point that the letter repeatedly makes (enjoin competition and fine the conspirator’s) is actually very coherent- at this point in time, the proposed settlement is not projected to hurt Apple, the main defendant, at all and the publishers only indirectly.

    It IS projected to hurt independent booksellers and Barnes and Noble. I think it will mainly hurt Amazon, but that’s just me. Either way, it’s hurting someone the DOJ didn’t accuse of any wrongdoing.

    And there is no reason to believe that eliminating the agency model at this point will lead to lower consumer prices, either, as it allows the publishers to suck up the discounts themselves by raising wholesale prices!

    A more direct approach would be to fine the the publishers and Apple by asking them to pay rebates to consumers. Or, better yet, force the publishers to cap agency prices at $9.99 and tell Apple they can’t take app revenue away from competitors.

    You know, solve the problem.

    • “I think it would be more like forcing the child to take back the portion of the candy he already sold to his little brother and eat that as well.”

      Except that they conspired to bring the Agency model about. Depriving them of their prize is not an unreasonable punishment.

      “The publishers’ goal was to encourage competition in the ereader space”

      No, the goal was to hobble Amazon, not foster competition. Go read those emails again. The problem was that Amazon was out-competing everyone, and the publishers wanted to stop that.

      “Apple did it so that Amazon, Barnes and Noble, et. al. would create develop Ipad apps rather than keep their ebooks proprietary to their own hardware. ”

      Hogwash. They would have done iPad apps immediately anyway. It’s the iPad, and what’s more all the majors already had iPhone apps.

      • “Except that they conspired to bring the Agency model about. ”

        Ah, that’s the crux of the matter, isn’t it?

        Barnes and Noble isn’t cool.

        But, they weren’t put on trial.

        “No, the goal was to hobble Amazon, not foster competition”

        This is the same thing. If publishers simply wished to kill Amazon out of pure spite, they could have simply pulled support for the Kindle altogether.

        “They would have done iPad apps immediately anyway. It’s the iPad”

        Perhaps, but Apple didn’t know that at the time.

        Lets put it another way: how does taking the agency model away now do anything but help Apple?

        If Amazon sells books at a loss they won’t be able to subsidize the Kindle Fire, but people can still read cheap-o Kindle books on the Ipad.

        Apple is the main defendant- the proposed punishment should do SOMETHING to them.

        But then, they are cool. So I see why the get a pass.

  3. oops
    – extra demand
    -conspirator’s should be conspirators

  4. “The Agency Six conspired to bring about the Agency pricing model and force Amazon to accept it – this we can say beyond a shadow of a doubt, given that 3 of the conspirators have already settled.”

    Beyond a shadow of a doubt? Really? Settling lawsuits to avoid lengthy legal battles, regardless of guilt, is a practice as old as time among corporations. Not to mention that under the terms of the settlement the publishers didn’t have to admit any wrongdoing. All of your opinions hinge on the fact that you “know” they’re all guilty, but really you know no such thing.

    • You should go read those emails, including the ones from Steve Jobs. They conspired.

      Also, if it weren’t true then why have all the editorials assumed that the publishers are guilty?

      • The emails are pretty damning: there’s the one where Penguin insisted they wouldn’t go unless they were at least “one of four” and Apple came back with reassurances that the others were on board.
        It looks like a classic hub and spoke conspiracy where a middleman carries messages to all the conspirators to minimize face to face meetings and incriminating evidencce. But the geniuses running the conspiracy *kept* the frakking emails!
        There is also the email where Penguin leaned on B&N to pressure Random House to get with the conspiracy and B&N complied, ending all promotion of RH titles until they joined in.
        Good point on the editorials from the apologists: all the conspirators defenders are saying is “they had good intentions/good reasons”, which is a pretty clear admission that yes, they colluded.
        And since the law makes no exceptions for “good intentions”…
        All the anti-Amazon spin is just a smokescreen to try to distract the public from the evidence.
        One thing I’m looking forward to is when the trial starts and Penguin and MacMillan change their plea at the last moment, rolling on Apple. 🙂

  5. Here’s the problem, Nate. Only the settling publishers and the other sued publishers should they lose would be required to give up agency pricing for a limited amount of time. All other publishers, including Random House who has not been sued can continue to use agency pricing, as can Smashwords and any other publisher/distributor — just not the named defendants.

    Which raises another problem that has not been addressed. Is it likely that the court will impose a sanction like that (or approve that portion of the settlement) knowing that agency pricing is legal and that others can do it. Based on my experience when I practiced law, which I grant was a long time ago, the court would not approve that portion of the settlement because it isn’t industry-wide and could put the settlers at a competitive disadvantage. Instead, the court is more likely to impose higher fines because the wrong was the collusion, not the agency pricing.

    Few commenters are really getting past their like/dislike for agency pricing and/or B&N/Amazon, none of which really matters in this lawsuit.

    • I think it’s something of a misnomer to say that Smashwords will be allowed to continue agency pricing; it’s not quite true. The reality is that Smashwords enables authors and publishers to control the prices of their ebooks and that is not quite the same thing. BTW, I’m fine with this because there’s a big difference between someone controlling the price of 5 titles vs a major publisher controlling the price of 5 thousand.

      And thanks for pointing out the problem with getting the settlement approved; I didn’t know that. I wonder why none of the amicus briefs argued that point?

      • The B&N brief alludes to the problem when it says that approval would be outside the normal court method of dealing with this type of problem and when it says that the DOJ would have difficulty enforcing it. David Boies is one of the best lawyers in America with an enormous amount of experience in antitrust litigation and arguing before the Supre Court. I suspect he chose his words very carefully so as to not step on the court’s toes yet draw them to the conclusion.

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