DOJ Comment Period Ends With a Flurry

As the deadline arrived for public comments, indie bookstores, the Authors Guild, a group of nine independent publishers, and consumers and book buyers were among a final surge of concerned parties submitting letters to the Department of Justice to oppose the proposed settlement with Hachette, HarperCollins, and Simon & Schuster for allegedly colluding to fix e-book prices and to express support for preserving the agency model.

Monday, June 25, was the final day to submit comments regarding the case. The settlement must be approved by a federal court, but, before that can happen, the Tunney Act requires DOJ to accept comments from the public, to publish the comments, and to submit a written summary of the comments to the court. A federal judge will then determine whether the remedy being proposed is “in the public interest.”

On Thursday, June 14, the American Booksellers Association submitted its public comments to the Department of Justice opposing the proposed consent decree “primarily because it requires that the Agency Model for the sale of e-books be eliminated by these three publishers for two years.” In the letter to DOJ, ABA CEO Oren Teicher wrote, “We believe that elimination of the Agency Model will radically change the current e-book distribution system, will significantly discourage new entry, and will lead to the departure from the market of a sizeable number of the independent bookstores that are currently selling e-books.”

Stressing that ABA supports the Agency Model, Teicher noted, “The Agency Model is pro-competitive and enhances consumer choice. It is a perfectly legitimate mode of business. Indeed, it is a completely appropriate response to aggressive pricing strategies that include the sales of e-books below the cost at which those books were acquired from publishers.” The full text of the ABA letter is available here in PDF format.

This week’s comments from the Authors Guild were submitted in a letter from Executive Director Paul Aiken, who asserted that the proposed settlement is not in the public interest and that “by allowing targeted predatory pricing of e-books” the proposed settlement “would give governmental sanction to a practice long considered destructive to a free and fair market.”

Noting that the “Justice Department’s assessment of the literary market offers but a pinhole glimpse of the genuine competitive landscape,” the Authors Guild called on DOJ “to rethink and revise its proposal” and stressed that the alleged collusion could be stopped “without requiring publishers to allow Amazon to resume predatory pricing.”

In conclusion, the Authors Guild said, “Of all the possible remedies to the collusion the Justice Department alleges, requiring three large publishers to allow Amazon to sell e-books at a loss is among the most destructive of competition that one could imagine…. It effectively cut brick-and-mortar retailers — logical participants in a bricks-and-clicks, showroom approach to marketing e-books — out of the game.”

In a joint letter filed prior to the midnight deadline, indie publishers Abrams Books, Chronicle Books, Grove/Atlantic, Chicago Review Press, New Directions Publishing, W.W. Norton, Perseus Books Group, Rowman & Littlefield Publishing Group, and Workman Publishing said the proposed settlements should be rejected because they “will adversely impact competition — harming independent publishers, authors, booksellers, and consumer,” all of whom “benefitted significantly from the fact that the Big Six publishers were able to adopt agency pricing arrangements with Amazon.”

Those arrangements, they said, “contributed dramatically to increased competition and diversification in the distribution of e-books,” “significantly increased the selection of e-readers and produced technical innovations that have enhanced the e-reading experience for consumers,” and “helped support the health of diversified brick-and-mortar retail choices for book-buying consumers.” And all the while, the indie publishers stressed, under the agency model, publishers “have continued to compete vigorously with one another on both the price and quality of e-books.”

The indie publishers said the proposed settlements were flawed for two fundamental reasons. Effectively banning the settling publishers from entering into agency agreement with booksellers for a period of two years, they said, is contrary to public interest and “would reverse the enhanced competition that has resulted from the agency model.” If the defendants did engage in unlawful collusion, the indie publishers said, then “competition among the defendants should be restored in a way that does not harm innocent third parties such as the Independent Publishers, authors, booksellers, and consumers.”

In addition, the indie publishers said, the proposed settlements’ provisions that would allow the settling publishers to limit discounting by retailers “are completely unworkable and unenforceable.”

Though DOJ asserts that it is attempting to restore competition to the marketplace, the indie publishers said, “The proposed settlements manifestly fail that test because they will impair rather than enhance competition” and for that reason “are not in the public interest and should be rejected.”

Over the course of the comment period, indie bookstores sent hundreds of letters to DOJ. The letters stressed that since implementation of the agency model more indie stores are selling e-books, that sales are growing, and that the agency model has helped lower e-book prices to consumers. The letters pointed out that there has been increased competition among publishers regarding promotions, discounts, and special offers, and that, as a result, bricks-and-mortar bookstores are able to offer customers a wider selection of titles and better value. Many of the letters also pointed out that if the agency model was discontinued Amazon.com would again be able to sell e-books at a price far lower than indie stores could even purchase these e-books for resale, resulting in Amazon again regaining a monopoly share in the sale of e-books.

Daniel Goldin of Boswell Book Company in Milwaukee, Wisconsin, noted in his letter, “As a small businessman, I am constantly being told by politicians that my voice is important. We’re told that we are the bedrock of business, that we are the job creation engines of this country.” He stressed, however, that, by effectively ending the agency plan, DOJ’s actions were saying that “a practice that helps small businesses, such as my bookstore, will not fly.” Under the agency plan, Goldin wrote, more retailers have entered the market and “we independent bookstores can continue to survive, by being able to compete in this fast-growing part of the business, along with Barnes & Noble, Apple, Sony, Google, and other players.” Looking at the far-reaching results of maintaining the agency model and a competitive marketplace, Goldin noted that “by helping independent bookstores, communities all around the country will have an important community resource, offering a community gathering space, a treasured third place, an event resource, and the bedrock of the shop local movement which helps other independent retailers.”

In his letter to DOJ, Andy Nettell of Back of Beyond Books in Moab, Utah, argued that Amazon.com’s actions “in every way indicate a monopoly in action,” and that it is an entity with a business model that “will lead to a classic vertical monopoly, where they control the entire process of bookselling, from signing draconian contracts with authors; dictating wholesale terms to non-Amazon publishers (if any are left in a few years); and restricting from whom consumers can buy books from.” Noting that “the agency model actually lowered the average price of e-books to the wholesaler and consumer,” Nettell asked DOJ, “Isn’t this a good thing? If one retailer dictates pricing, which is what Amazon did before the agency model, then a monopoly will occur. Isn’t this what your division is supposed to do? Prevent monopolies? The irony of the consent decree is that by its very terms, competition will be stifled and consumers and retailers will have less choice than ever.”

In their letter, Jean H. Brower, Rondi E. Brower, and Richard L. Brower of Blackwood & Brouwer Booksellers in Kinderhook, New York, argued that the Department of Justice had failed to recognize the true danger to the industry and consumers. “When a company sells a product below its cost, there are two obvious possible motives. One is as a loss leader, to bring new customers in and have them buy other products while shopping. The other reason is to drive competitors out of business,” they wrote. Whatever the reason, they argued that “although the result might have been a short-term price reduction for consumers, the entire product — the p-book as well as the e-book — was being devalued. It does not take collusion on the part of the manufacturers whose products are being undervalued, and whose long-term solvency is at stake, to understand why they might be opposed to, and take individual action to, change the situation.” Pointing out the “the result of the agency model for pricing of e-books was to substantially increase competition,” they wrote, “the DOJ lawsuit is incomprehensible to us — as business people, as taxpayers, and as voters.”

Michael Herrmann of Gibson’s Bookstore in Concord, New Hampshire, wrote in his letter to DOJ, “The agency plan was the only natural response to Amazon’s predatory behavior, and it is the only logical model for the sale of e-books.” Under the agency model, he noted, “Physical books and e-books continue to be priced at various levels in response to a variety of factors.” Referring to publishers’ actions cited in DOJ’s court filings, Herrmann wrote, “I understand that dinners were had and e-mails were exchanged,” but he stressed, “Even if you must punish certain publishers for appearing to act in collusion, please do not throw out the inevitable outcome of this supposed collusion, the agency plan, which benefits everyone in the publishing ecosystem other than one rogue, monopolistic retailer.”

With the public comment period now closed, DOJ must publish the comments and submit a written summary to the federal court charged with approving the settlement before the end of July.

ABA thanks the many booksellers who submitted comments and reminds them to send a copy of their letters to the association’s content officer, Dan Cullen.

A trial date for Apple and the two publishers that have chosen not to settle the case with DOJ — Macmillan and Penguin — has been set for June 3, 2013.