Friday, April 13, 2012

DoJ vs Apple et al examined

My E-book Pricing Examined: Part III was posted within two hours of the lawsuit filed by the United States Department of Justice against Apple and five of the six major publishers. I have since had the time to actually read the legalese of the suit itself, so I thought I'd offer this addendum and some corrections. (Honestly, what can I expect when the big news media can't get it right the first time around?)

The key to this lawsuit is that the DOJ is accusing these six companies of violating Section 1 of the Sherman Anti-Trust Act. This piece of legislation was passed in 1890, and is primarily about ensuring healthy competition between companies operating within the United States. Section 1 reads:
Every contract, combination in the form of trust or otherwise, or conspiracy, or restraint of trade or commerce among the several States, or with foreign nations, is declared illegal. Every person who shall make any contract or engage of any combination or conspiracy theory hereby declared illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, at the discretion of the court.
For those interested in doing their own digging, this is US Code Title 15, Chapter One.

In their suit, the DOJ is arguing that the agency model unlawfully restricts the trade of e-books. Further, that the defendants in the case conspired together to deliberately restrict the trade of e-books. The bulk of the document is an interesting list of a chronological order of events which is meant to establish that the CEOs of the corporations in question colluded on price fixing. Keep in mind, the CEOs in question are not themselves listed as defendants and are not being charged with anything. Whoever wrote the document does an interesting game of naming a few CEOs in certain places, but deliberately does not name CEOs or companies in other places. Not being of a legal background, I'm unsure as to the legal reasoning behind this, but as a reader this certainly made me feel like certain companies and CEOs were being targeted more than others.

Also, even though Apple, Hatchette, HarperCollins, McMillan, Penguin, and Simon & Shuster are all listed as defendants, Hatchette, HarperCollins, and Simon & Shuster have all signed a settlement with the DOJ. However, the settlement must be approved by the US District Court for the Southern District of New York before it goes into affect. Random House did not enter into an agency agreement with Apple and other retailers at the same time as the other five, and has therefore avoided any and all conspiracy charges. I should also point out that there are in fact seven defendants listed: Apple, the five publishers listed, as well as Penguin Group, the parent company of Penguin Group USA. I do not know why the London based company is listed along with its New York based subsidiary. All of the five publishers are parts of larger companies, but the multi-national conglomerations are not listed for the other four publishers.

This one is kind of hard for me. I can see where the DOJ thinks it has a case. However, I can see the flip side. In making a move to control prices, publishers actually encouraged having more e-book retailers in the marketplace. While Amazon is still the major e-book player, Barnes and Noble, Apple, and Kobo all have healthy positions. I am unsure whether this would be the case had Amazon continued with loss leading most (but not all) of their bestselling e-book titles at $9.99. Competition is now more about user experience than about price, but that's still a very valid method of competition. It's also become and increasingly important method of competition in the digital age. I've also notice a fairly unilateral rise in print book prices over the last year, though no one has complained about that in flame wars across the internet.

I don't know. Maybe I'm still just stuck on the "if you can't afford it, don't buy it" financial ideals I ascribe to. (Before I spark a flame war on myself, this DOES NOT include things necessary for basic survival. This is only in reference to life's little and not-so-little luxuries, some of which are books.) As well, I'm a library advocate. I couldn't afford to feed my book addiction right now if I bought everything I read at retail value. I'd read myself out of house and home if I tried. So, I borrow my books from the library. If indeed e-book prices were too high, consumers would not be purchasing them, and publishers would be forced to adjust the price to a point where they saw healthy sales or they would go out of business. To me, the fact that e-book sales are growing, as are book sales overall, means that e-book prices are not out of line for the market in general. But, just as my legal understanding of this lawsuit may be completely wrong, my understanding of basic economics may be as well. I also worry about what price the authors, editors, and other staff at the big publishers may pay if their product is deeply devalued. I want them to be able to eat, so they can go on keeping me addicted to all their stories.


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