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What is this price fixing lawsuit about anyway? A Q&A

Introduction

I’ve talked to several readers about the price fixing lawsuit and people have a lot of questions.  I thought I could provide a few answers here to help clarify matters.  If you have a question, drop a line in the comments.

1.  What are the lawsuits and who do they involve?

There are three lawsuits in the United States alleging that five of the big six publishers (Hachette, HarperCollins, Macmillan, Simon&Schuster and Penguin) colluded with Apple to raise ebook prices.  Those three lawsuits are as follows:

  • Department of Justice (a federal lawsuit)
  • 31 States’ Attorney Generals
  • Private class action suit

There are also investigations taking place in Canada, Australia, and the EU.

2.  What are the suits about?

All three of the U.S. lawsuits are essentially the same.  The suits allege (or accuse) that Hachette, HarperCollins, Macmillan, Simon&Schuster and Penguin conspired or colluded with Apple to raise the ebook prices from the price level that ebooks were at leading up to January 2010 which was primarily $9.99 for Bestsellers and under.

What we know from the documentary evidence (or evidence that is supported by emails, notes, memos or telephone records) is that executives of the five publishers communicated with each other about two things:

  • windowing ebooks (windowing means holding back the sale of an ebook for a period of time after the paper book is released)
  • moving to a retail price maintenance model (or “Agency” as it is commonly known) that guaranteed the price would be the same at Apple as it would be anywhere else and that Apple would get a 30% commission from all digital books sold through Apple’s store.
Judge Cote, the judge who is presiding over all three suits, said that the documentary evidence creates a “plausible” case for “per se” violations of the antitrust law.

3.  You’ve made a big deal about “per se”.  What does that mean?

Shorter answer: It is much harder for a defendant to win a per se case and much easier for the plaintiffs.  Accusations that Amazon made them do it won’t be permitted in a per se case.

Long answer: Per se is a legal standard.  Accusations of antitrust violations are measured against one of two standards: either “per se” or “rule of reason”.

Per Se:  A per se violation is “conclusively presumed illegal.” Under this standard, business justifications or social benefits are not considered and the Defendant Publishers would not be allowed to offer proof to justify their actions such as arguing that Amazon was going to destroy publishing. Under a “per se” standard, Amazon and their actions are completely unimportant.  The Supreme Court in United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 221, 222 (1940). said the following:

The elimination of so-called competitive evils is no legal justification for such buying programs. The elimination of such conditions was sought primarily for its effect on the price structures. Fairer competitive prices, it is claimed, resulted when distress gasoline was removed from the market. But such defense is typical of the protestations usually made in price-fixing cases. Ruinous competition, financial disaster, evils of price-cutting, and the like appear throughout our history as ostensible justifications for price-fixing. If the so-called competitive abuses were to be appraised here, the reasonableness of prices would necessarily become an issue in every price-fixing case. In that event, the Sherman Act would soon be emasculated; its philosophy would be supplanted by one which is wholly alien to a system of free competition; it would not be the charter of freedom which its framers intended.

The reasonableness of prices has no constancy due to the dynamic quality of the business facts underlying price structures. Those who fixed reasonable prices today would perpetuate unreasonable prices tomorrow, since those prices would not be subject to continuous administrative supervision and readjustment in light of changed conditions. Those who controlled the prices would control or effectively dominate the market. And those who were in that strategic position would have it in their power to destroy or drastically impair the competitive system. But the thrust of the rule is deeper, and reaches more than monopoly power. Any combination which tampers with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices, they would be directly interfering with the free play of market forces. The Act places all such schemes beyond the pale, and protects that vital part of our economy against any degree of interference. Congress has not left with us the determination of whether or not particular price-fixing schemes are wise or unwise, healthy or destructive. It has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies. It has no more allowed genuine or fancied competitive abuses as a legal justification for such schemes than it has the good intentions of the members of the combination

Rule of Reason:  Under the rule of reason, the accusing parties (the states, DOJ, class action plaintiffs) would have to prove that the price movements made by the Defendant Publishers were not reasonable and the Defendant Publishers and Apple could offer proof that would justify their actions.  In  Clorox Co. v. Sterling Winthrop, Inc. (2nd Cir. 1997), the 2nd Circuit defined the rule of reason standard in this fashion:

First, the “`[p]laintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market….'” Id. (quoting Capital Imaging, 996 F.2d at 543). Then, “[i]f the plaintiff succeeds, the burden shifts to the defendant to establish the `pro-competitive “redeeming virtues”‘ of the action. Should the defendant carry this burden, the plaintiff must then show that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition.” Id. (internal citations omitted) (quoting Capital Imaging, 996 F.2d at 543; Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th Cir.1991)). Ultimately, the goal is to determine whether restrictions in an agreement among competitors potentially harm consumers. See SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 965 (10th Cir. 1994). The focus of the inquiry on consumers “cannot be overemphasized and is especially essential when a successful competitor,” as here, “alleges antitrust injury at the hands of a rival.” Id.

(Note there is also an inherently suspect standard that can be applied as well but I’m going to skip that for purposes of brevity and coherence)

4.  Why can’t the publishers set their own prices like other manufacturers of goods like shoes or perfume or computers?

Publishers can set their own prices. In this circumstance, however, the publishers didn’t just set and maintain certain prices.  They got together and made sure all their publisher friends were going to do it as well because they knew (according to the allegations) that they couldn’t afford to engage in Retail Price Maintenance if only one of them was going to do it.

It used to be that Retail Price Maintenance (RPM) which is a manufacturer setting the price at which a good could be sold was not permissible except under certain circumstances such as when the seller was an agent or pass through of the owner.  The best example of this is a real estate broker and a home owner.  The home owner sets the price and the real estate agent helps to broker the deal but the real estate agent acts as the agent of the home owner.  The agent can’t change the price of the house without the permission of the owner.

Under those scenarios, an owner or manufacturer of a good could set the price of a good.  In 2007, the U.S. Supreme Court loosened the rules on RPM and basically said that if there is a good business justification, then a manufacturer or producer of a good could set their own price.  In the decision of Judge Cote to deny the Defendant Publishers and Apple’s move to get rid of the lawsuit, she references that RPM can be used.  In the settlement proposal for the DOJ, RPM is allowed under certain circumstances.

Those circumstances include allowing retailers to pass on their commission (whatever is negotiated between the publisher and the retailer like Amazon) to the consumers in the form of a discount.

5.  Isn’t Amazon a monopoly? Why is that okay?

Not all monopolies are illegal. (See the Primer) It isn’t even illegal to acquire a monopoly.  There were ebooks before Amazon, but it wasn’t until Amazon introduced the Kindle and its one click buy feature from the device itself that ebooks began taking off.  Amazon released the Kindle First Generation on November 19, 2007.  From 2008 to 2010, ebook sales grew from .6 % to 6.4% of the overall book market. (Source: AAP) Amazon had 80-90% of the ebook market at the beginning of 2010. Nook entered the market on November 22, 2009, Apple with iBooks announced on January 2010, and Kobo in July 2010.  Currently the ebook market for trade fiction sales varies from publisher to publisher but is around mid 20% to 30%.

6.  Didn’t Amazon acquire its monopoly through predatory pricing?

In 2010, when the publishers and Apple allegedly colluded to fix price, Amazon controlled 80-90% of 6.4% of the overall book market according to the statistics of the American Association of Publishers.  While Amazon did sell some of its ebooks at a loss leader price of $9.99, the Kindle was one of two dedicated devices marketed to the US readers and widely available in the US. (Sony’s reader actually predated Amazon).  In other words, no one was competing against Amazon from 2007 to 2010 except for Sony.

There were other ebook retailers, but none that sold a dedicated reading device and none that allowed on device purchasing and delivery of ebooks over a cellular connection.  Amazon would have evidence that it provided a product and service in the ebook market that was technologically advanced at the time.

Nonetheless, let’s talk about predatory pricing for a minute. Predatory pricing (a Section 2 violation of the Sherman Act)  is considered anticompetitive and a violation of antitrust.  However, it is very difficult to prove.  Predatory pricing requires proof that the seller deliberately undercut its competitors to drive those competitors out of business.

In Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), the Supreme court established the following test:

Accordingly, whether the claim alleges predatory pricing under § 2 of the Sherman Act or primary-line price discrimination under the Robinson-Patman Act, two prerequisites to recovery remain the same. First, a plaintiff seeking to establish competitive injury resulting from a rival’s low prices must prove that the prices complained of are below an appropriate measure of its rival’s costs.

The second prerequisite … is a demonstration that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices. …  Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced. Although unsuccessful predatory pricing may encourage some inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in general a boon to consumers.

The court goes on to say:

That below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured: It is axiomatic that the antitrust laws were passed for “the protection of competition, not competitors.”

and

If circumstances indicate that below-cost pricing could likely produce its intended effect on the target, there is still the further question whether it would likely injure competition in the relevant market. The plaintiff must demonstrate that there is a likelihood that the predatory scheme alleged would cause a rise in prices above a competitive level that would be sufficient to compensate for the amounts expended on the predation, including the time value of the money invested in it. As we have observed on a prior occasion, “[i]n order to recoup their losses, [predators] must obtain enough market power to set higher than competitive prices, and then must sustain those prices long enough to earn in excess profits what they earlier gave up in below-cost prices.”

Evidence of below-cost pricing is not alone sufficient to permit an inference of probable recoupment and injury to competition. Determining whether recoupment of predatory losses is likely requires an estimate of the cost of the alleged predation and a close analysis of both the scheme alleged by the plaintiff and the structure and conditions of the relevant market.

It should be noted that when Amazon began its $9.99 pricing scheme, there were only a few competitors in the marketplace: Sony, Fictionwise, Diesel.

6.  Is there any action that can be taken against Barnes & Noble for their alleged actions against Random House?

In the amended complaint of the States’ Attorneys General, there were allegations that Barnes & Noble engaged in two different acts to create and enforce the collusion:

  • BN assisted Macmillan in its move to Agency Pricing by moving Macmillan’s products to the top of its merchandising pods and to the front of the Nook recommendation section.
  • BN punished Random House for not colluding by not including RH books in any of its advertising.
People have asked whether BN would be in trouble for this.  First, this information was known to the government  plaintiffs at the time their lawsuits and given that BN was not included in the lawsuits, it is unlikely any charges would be brought.  Second, there don’t appear to be any allegations of collusion with BN, only that BN helped enforce the collusion.  This is likely not enough to be a violation of the Section 1 price fixing allegations.

7.  Will the prices come down? Or what will happen next?

Simon & Schuster, Hachette, and HarperCollins have agreed to settle with the DOJ.  The terms of the settlement would allow retailers to gain control over pricing and include those publishers ebooks in loyalty programs, discount clubs, and straight up discounting.  Amazon has signaled that it will begin discounting once the settlement is approved.  The settlement could be approved as early as August.  The parties have 30 days to comply with the agreement once the settlement is approved.  The earliest prices will likely be reduced is September or October of 2012.

Simon & Schuster has reportedly settled with the States’ Attorneys’ General.  The terms of this settlement is unknown at this time but will be made public.  Based on past reports, it is likely to include cessation of the current control by S&S over pricing along with some kind of rebate to consumers who purchased S&S books from 2010 until the date of the settlement.  Hachette and HarperCollins were reportedly in settlement talks with the states.

If Simon & Schuster, Hachette, and HarperCollins would settle with DOJ and the States’ Attorneys’ General and those settlements would result in some payment to consumers, then it is likely the Class Action suits would be dismissed.

You can read more about what might happen next here.

8.  Will “Agency” pricing still exist?

The DOJ settlement terms allowed for a 2 year cessation of agency agreements except one kind.   The  settlement agreement allows a retailer, like Amazon, to discount books but limits the discount in one year for one publisher to not exceed the retailers aggregate commission.  Assume Amazon signs an agreement with Hachette and Amazon agrees to accept a 30% commission on every book sold.  For one year, the total amount of discounts cannot exceed the total commission Amazon received for that year.  Some of the books could be half off, buy one get one free, or not be discounted at all.  But the total discount cannot exceed total commission.  Assume Amazon sold 100 books for Hachette that were retail priced at $9.99.  The total commission for Amazon would be $299.70.  Thus, the overall discounts Amazon gave to us readers could not exceed $299.70.

I hope this helps to clarify some issues. Please feel free to drop a question in the comments.

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

58 Comments

  1. What’s Up With the Lawsuits? « Angela Benedetti
    May 20, 2012 @ 04:49:55

    […] Author’s Jane (who’s a lawyer in her day job) put up a great post about the lawsuits against the publishers and Apple. She explains what’s going on, what the […]

  2. Nicole Jane
    May 20, 2012 @ 07:45:54

    Thanks, that was great Q&A.

    Why do I now want to go watch Legally Blonde now?

  3. Jean K
    May 20, 2012 @ 07:51:37

    Thanks for continuing to compile, report, and provide expert legal opinion. You are providing a tremendous service that is traveling well beyond the DA readership.

  4. Don Linn
    May 20, 2012 @ 07:59:19

    This is great, Jane. Thank you.

    My only question is why people continue to try to make Amazon the villain when they’ve not been accused of anything.

  5. What is this price fixing lawsuit about anyway? A Q&A | Social Media for Promotion & marketing | Scoop.it
    May 20, 2012 @ 08:11:51

    […] background-position: 50% 0px ; background-color:#222222; background-repeat : no-repeat; } dearauthor.com – Today, 9:11 […]

  6. library addict
    May 20, 2012 @ 08:12:09

    This is an off-topic question, but why is it that Amazon was able to patent it’s 1-click programming? If it’s really based on the shopping cart programming why are so many e-companies allowed to have shopping carts but not the 1-click part? I know patent law is a mess, but this seems extreme even for them.

    Also, how long will the “agency pricing” be in effect for Random House books? Since they were late to join does that mean they will the last to do away with it or could they get a jump on the other 5 and be the first to allow discounts again?

    And a stupid question, but I am curious (and haven’t been to law school so I really don’t know), if Macmillan and Penguin do not join the settlement and this goes to trial, would it be a jury trial or decided by a judge?

  7. library addict
    May 20, 2012 @ 08:12:59

    Oops, its not it’s.

  8. Jane
    May 20, 2012 @ 08:54:16

    a) Amazon’s 1-click patent is under a business method patent which is one of the most abused types of patents in the system. Even Jeff Bezos spoke out for the need for patent reform, including a revision of the business method patent. I don’t know much about the law but a business method patent basically is a Class 705 patent: http://www.uspto.gov/web/patents/classification/uspc705/defs705.htm

    “This is the generic class for apparatus and corresponding methods for performing data processing operations, in which there is a significant change in the data or for performing calculation operations wherein the apparatus or method is uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data.”

    b) Random House could do whatever it wants. It could continue with Agency (although as indicated by Judge Cote, agency isn’t worth it when you are going alone because your books are priced so much higher than your competitors). It could immediately cease agency and move to wholesale.

    c) The trial would be a jury trial.

  9. Carrie
    May 20, 2012 @ 09:17:43

    @Don Linn: A better question might be why people are mad at Amazon, but go around wearing “I heart Apple” stickers. Apple is just as focused on the bottom line as Amazon, and has pretty much succeeded in driving out all competition in the MP3 market. It’s now zeroing in on the tablet market with the fall release of it’s 7in iPad. And while Amazon at least benefits the consumers by discounting, Apple never does. It would be nice if Apple’s loyal customers would at least pressure the company to fix the crappy iTunes software and user interface.

  10. Carrie
    May 20, 2012 @ 09:26:18

    The Agency Model has done nothing but hurt the publishers involved. The short-sightedness of the venture is mind boggling. Why in the world would I pay n$7.99 for an ebook? I can either get it at the library, or get a 20% off coupon for the paperback copy (I don’t buy without coupons). After I read the book, which has now cost me $5.50 with the coupon, I take it to a used book store and sell it for 25% of the cover price, or $2. My investment in the book is now $3.50. Or, I simply wait and buy it for $3.99 at the UBS to begin with. Of course, I’d love to buy it in ebook for, say, $4.99, or even $5.99, for the convenience (not to mention I won’t have to shelve it).

    This venture into price-fixing has helped small publishers and indy authors, though, and I bet many people who buy ebooks will continue to look for low-priced gems among the indy books. This debacle has done the small publishers and indy authors a big favor, even if they didn’t mean to.

  11. Anne V
    May 20, 2012 @ 10:13:04

    What Carrie said.

    Additionally, windowing is dumb. Really dumb. Because I am not, at all, technically knowledgeable or even stealthy. I rigidly pay for my books and music and movies and this is what I started doing when windowing hit: book comes out in hardcover, ebook won’t come out for weeks. buy the hardcover used, send it to be scanned to HTML (with OCR for $3), which will get done because there’s no ebook for the title, get the hardcover back, sell the hardcover back.

    The only hassle is dropping off & picking up the physical books. I get new release hardcover titles in ebook for ~$6 – before the $14.99 ebook is released and without waiting for the $8.99 ebook that comes out when the title goes to paperback. Also, there’s no DRM on any of those titles.

    The short-sightedness of the whole collusive price-fixing, agency model, windowing thing just staggers me. The more I learn, the more flabbergasted I am. This is not naivete. This is greed and fear causing stupidity.

  12. Courtney Milan
    May 20, 2012 @ 10:56:44

    @library addict: The 1-click patent isn’t based on the shopping cart model, so much as it’s restricted to instances where a shopping cart model isn’t used.

    I do not think that if Amazon’s 1-click patent were challenged effectively today, it would survive under the Supreme Court’s most recent obviousness jurisprudence–he Supreme Court has, in the years since Amazon’s reexamination, raised the bar for when patents will issue–and I’m not sure it would even pass the more recent tests for patentability.

    The reason it’s around is because (1) the PTO allows way too many patents, (2) it was issued in an era when the PTO was not rejecting things on grounds of either obviousness or threshold patentability, and (3) nobody has challenged it in court.

    At this point, it has half a decade of life left, which means that it’s not worth a court challenge. By the time we had a ruling–and never doubt that Amazon would fight this one up as far as it could, and delay the proceedings in every way possible–the patent would be expired.

  13. Wahoo Suze
    May 20, 2012 @ 11:10:48

    @Anne V: What Carrie and Anne V said.

    Windowing is like the opposite of marketing. Instead of building up a buzz so that people are eagerly anticipating the release of your book, and are willing to stand in line for hours to be the first to buy it, you hold it back until they forget all about it and have gone on to something else.

    The more I learn about the publishing business, the more baffled I am.

  14. Author On Vacation
    May 20, 2012 @ 11:41:25

    @Carrie:

    This venture into price-fixing has helped small publishers and indy authors, though, and I bet many people who buy ebooks will continue to look for low-priced gems among the indy books. This debacle has done the small publishers and indy authors a big favor, even if they didn’t mean to.

    It has benefitted readers also. : ) Digital reading options have spurred a cultural renaissance for novellas and short stories. It’s always great to recognize silver linings in clouds.

  15. Jane
    May 20, 2012 @ 12:27:08

    @Carrie: and @Anne V: You have to look at the moves from the publishing standpoint. While windowing and increased ebook prices may have deterred ebook purchases, that would have been a positive for publishers. They wanted to slow ebook adoption as much as possible because of two reasons:

    1) their business model was predicated on sales of physical hardcover books. (Not mass markets. Mass market segment of the market is not driving any decisions. It’s the hardcovers and specifically the bestsellers).

    2) because of their size and existing contractual obligations, they could not move as quickly to change course and wanted to slow ebook market until they had time to determine and direct action.

    Publishers would argue that to take a reduction in the ebook portion of their business was long term planning because it served to help Barnes & Noble gain a foothold in the market and decreased Amazon’s market share. That it hurt the digital book consumer is not a concern to them because they would argue that their actions created more competition (i.e., BN’s encroachment into the market share) and allowed for greater innovation (BN came out with the tablet before Amazon).

    Others would argue that the rise of the high royalties offered by Amazon for self published books is a result of Amazon seeing an opportunity to peel away disenfranchised authors from the traditional publishing mothership and that if there was not the competition from the publishers in the form of Agency pricing, Amazon would not have felt compelled to make these upgrades or offer these beneficial terms.

    Monopolies, generally speaking, aren’t good for the consumer because a company with a dominant market share lacks incentive to innovate or be competitive on price, terms, customer service.

    That said, none of this matters in the scheme of the lawsuit.

  16. Jamie
    May 20, 2012 @ 13:04:17

    I don’t care about the windowing terms. They can window all they want – if you REALLY want to buy the book immediately, buy it in hardcover. But they better put out the ebook at the same time as the paperback, and for the same price, because in my eyes they’re equivalent: Mass Market.

  17. Janet W
    May 20, 2012 @ 13:41:28

    I usually don’t notice who windows (because few books matter to me on “opening day”, so to speak), but I really want the new Carla Kelly and I noticed that Harlequin is windowing the e-release. That is, I can’t download the book on the same day the paper book is in stores. So is windowing OK as a publisher “how to make the maximum amount of money off the consumer option” but it’s not OK to do it in concert with other publishers? In fact that was my impression about this whole kit and kaboodle. That nothing was illegal individually, it was the doing it together aspect. My two cents on Amazon, and bear in mind I buy almost everything either from them, my local B&N or used, is that they won’t be as supportive to authors, nor will they keep prices low, when there isn’t the same incentive to do so. I’m not saying that as a criticism or as a bad thing, just as what I expect.

    In real life, folks charge what the market will bear — why should booksellers be different?

  18. Maili
    May 20, 2012 @ 13:43:42

    @Wahoo Suze: Yup. There are very few certain novels I’m interested in buying, but all still not digitally available. I’ll wait because I just won’t buy print. No room in my house for them. I mean, do we have room for children’s books? Yes. Practical handbooks, yes. Books with high sentimental value, yes. New novels? Nope. As for other novels not digitally available? I just write them off and move on to buy the digitally available ones. Their losses, not mine.

  19. Linda Hilton
    May 20, 2012 @ 14:23:03

    @Jane:

    Others would argue that the rise of the high royalties offered by Amazon for self published books is a result of Amazon seeing an opportunity to peel away disenfranchised authors from the traditional publishing mothership and that if there was not the competition from the publishers in the form of Agency pricing, Amazon would not have felt compelled to make these upgrades or offer these beneficial terms.

    I’d like to hope the self-publishing opportunities offered by Amazon have proven sufficiently profitable for them that they continue to do so, because I don’t think they, or any other similar business, would do so out of the goodness of their hearts.

    As more and more traditionally published authors take the self-publishing plunge and at least partly abandon the print publishers, perhaps going to POD options for those readers unwilling or unable to switch to digital, I think the publishers will have to change their practices or risk losing the suppliers of their product. Yes, it requires more work and cash investment on the part of the writer to get her manuscript into acceptable digital format, but if the returns are so much higher, why the heck not?

    One of the frequent complaints on this board and others is that favorite books and/or favorite writers simply aren’t available in some parts of the world due to geographic restrictions. Amazon has begun to break down at least some of those walls, allowing writers to publish and sell directly to a widening readership. I expect to see translation services springing up the same way cover art designers have, and authors will drive the international market rather than publishers who pay 2% of net and show themselves as third party licensees.

    But I’m not sure Agency pricing alone drove this. Maybe it did, but given Amazon’s history of looking forward and trying new options, I’d be willing to believe that Agency pricing may have made the Kindle Direct Publishing product more attractive and more profitable for more writers, but Amazon would have promoted it anyway.

    Of course, I could be wrong, too.

  20. MaryK
    May 20, 2012 @ 14:47:42

    How did all this affect author royalties? If authors lost money could they sue for loss of profits due to illegal activities or something?

  21. Courtney Milan
    May 20, 2012 @ 14:51:11

    @Janet W: I don’t know that the Harlequin titles are true “windowing.” What it really is, I’m guessing, is a function of the fact that (1) most of Harlequin’s titles don’t get hard lay-down dates, and (2) Harlequin’s computers treat digital titles as completely separate editions from print titles, and so the release dates aren’t automatically synchronized.

    So Amazon will start selling the new Carla Kelly book as soon as they get the physical copies. They won’t sell the new e-book until the official release date, which is the first of the month.

    In some cases, you see apparent windowing because they set up physical books so that (1) they have a physical release date that corresponds with the relevant Tuesday (because most new books lay down on a Tuesday), while (2) the digital release dates are still batched at the first of the month.

    I think this is more a question of not caring than it is an attempt to window–that is, their computer automatically sets the release date to the 1st for every digital title, and they only bother to change that if it’s important. So, for instance, they don’t have separate release dates for any of their lead titles.

    Take Gena Showalter’s July release: It has a release date of June 26 for both the Kindle and the print edition. By contrast, Delilah Marvelle’s August release has July 24/August 1.

    It would be really backwards to window the titles that had lower demand and not window their NYT bestsellers.

    The way I’ve put these pieces together is conjecture on my part, but at least some of this conjecture is based on answers I got from my editor when I was published by them. I’m sure someone on the digital team could give a much more complete, comprehensive answer, but like I said, I think this is more of a systems bump than an intentional practice.

  22. Janet W
    May 20, 2012 @ 15:20:40

    Courtney, thanks for the information about Harlequin — it was kind of you to lift a veil on what seems to be happening behind the scenes. From my perspective, though, shouldn’t I perceive what is happening with the new Carla Kelly title as windowing? Or are you saying I have misused the “label” because the label isn’t accurate in the case of the Carla Kelly book? But isn’t that what’s happening to me? I’m not putting that very clearly — let me try again. I want to buy the new Carla Kelly and I can’t buy the e-version on the same day that I can buy the print version. Because she isn’t a Harlequin mega-seller? I thought perhaps Harlequin treated its lines (she’s Harlequin Historical I think) differently from the bigger-name stand-alone authors. Truthfully, I don’t really know or care, per se, why publishing companies do what they do, when they do their e-converting runs, for example. I only care as it affects me, the consumer. What is it they say, the customer is always right? Publishing companies may decide their bottom line is better served by not allowing me to buy an e-book the same day a print book is available. That’s their individual right. And my decision can be to not like that, even though, in the case of some authors, they will eventually get my dollar.

    Same with e-lending. There doesn’t seem to be any rhyme or reason to who allows e-lending. Was that also part of the lawsuit? Harlequin doesn’t, Samhain does, most self-published authors do … as a consumer, it’s catch as catch can who does what and it often seems to me that the bigger the publisher, the less likely I am to catch a break on consumer-friendly things like e-lending.

  23. Sunita
    May 20, 2012 @ 15:45:07

    @Janet W: You can buy the Carla Kelly as an ebook right now at Harlequin’s website, you just can’t buy it at other retailers until the official publication date. So it’s not a case of windowing, it’s a matter of Harlequin choosing to offer readers who shop at their site an opportunity to buy in advance.

    As Courtney says (and she certainly knows better than I do), this seems to be a case where the digital and print distributions are working independently. Windowing, whether individual or collusive, refers to a deliberate attempt to stoke print sales by withholding ebook availability.

    And whether or not Harlequin makes the books available a month in advance depends on the line. The Medical line, for example, only makes ebooks available on the official release date, and there are a few other lines where that is true as well (oddly, some of the e-only lines don’t have advance availability).

  24. lucy
    May 20, 2012 @ 15:53:54

    This might have been mentioned and I probably missed it, but why wasn’t Random House sued? Was it because they were strong-armed into agency pricing?

  25. Peter Turner
    May 20, 2012 @ 16:09:04

    You mean not accused of breaking any , right? There are certainly any reasons why folks think Amazon is not a force for good in the universe, though being evil certainly isn’t against the law.

  26. Brie
    May 20, 2012 @ 16:10:29

    @Janet W: Sunita is right. As far as I know, you can get ebooks from the Super Romance and Presents lines one month before publication date, yet other lines like Silhouette Romantic Suspense are not available earlier. But if you wait to buy them from any other retailer print books are usually on sale one week before their respective ebooks. I have even seen HQN and Mira books available in bookstores days before their release date.

    And I would also like to know if all this will affect the lending availability for ebooks. As someone who almost exclusively reads and buys ebooks I would love to be able to lend them more frequently, even if I can only lend the same book once. I guess there won’t be real changes (and this is an unrelated subject) but a girl can dream. ;-)

  27. Jackie Barbosa
    May 20, 2012 @ 16:22:43

    @Janet W: If you self-publish through KDP (Amazon’s platform), you have to allow lending. It’s not optional. I’m not sure if the small presses like Samhain have a choice, either. The large publishing houses, however, can opt out.

    @lucy: Random House was not sued because they were not a party to the original Agency Pricing talks and therefore did not engage in the collusion. They only came to Agency Pricing after the publishers who have been sued had implemented it.

  28. Courtney Milan
    May 20, 2012 @ 17:14:26

    @Janet W: I think what I was trying to say is that Harlequin’s windowing is unlikely to be part of the same anticompetitive agreement as the other publishers, as it’s based on different factors. I wasn’t trying to say that it was not an annoying difference in availability of print versus digital.

  29. Meoskop
    May 20, 2012 @ 17:52:16

    I don’t have a problem personally with Harlequin’s version of windowing. Because they offer many books in advance of paper publication (via their site) and resisted the price fixing move, I find it hard to fault them. I don’t know why other publishers didn’t move to capture higher profit percent via direct consumer sales. In general they have been (with Carina) the most consumer friendly of the big publishers.

  30. Jane
    May 20, 2012 @ 21:45:42

    @Janet W – no lending is not part of the lawsuit.

  31. Ann Somerville
    May 20, 2012 @ 22:23:01

    @Carrie:
    “Apple is just as focused on the bottom line as Amazon, and has pretty much succeeded in driving out all competition in the MP3 market.”

    Evidence for that? Apple did for music what Amazon did for ebooks – before iTunes, legal downloadable music barely existed. It made it easy and cheap to buy individual songs. Note – it doesn’t even make the music *cheaper* than CDs. It just makes it easy. Can someone explain why giving the customer what they want is evil?

    ” It’s now zeroing in on the tablet market with the fall release of it’s 7in iPad. ”

    Oh that heinous empire! How dare it exploit a market it created single-handedly, by selling better and better tablets that consumers adore? With an operating system that many customers find better, easier and more fun than the alternatives?

    There are many reasons to be suspicious of Apple’s business methods – and the price fixing cartel is just one perfect example (note that despite their attempts to screw the market, Apple sells not a tenth of the books that Amazon does, so they might be evil but they are not omniscient) – but the fact they sell great products and great services is not a reason to call them a lousy company.

    Question for Jane – currently Smashwords doesn’t allow any of the retailers it distributes to, to discount (though they’re allowed to pricematch, which Amazon does enthusiastically). Am I right in thinking that nothing about this DoJ suit affects that? I hope not because like a lot of self-pubbers, my books are already priced well below the pro published stuff. Discounting would make 3rd party sales pretty much worthless.

  32. Kaetrin
    May 20, 2012 @ 23:22:01

    When you think about it I guess that Random House have been very clever. They made loads of extra cash when they were the only big NY publisher not to sign up to Agency price fixing and then they signed up to Agency and made loads of money doing that. (And they did it in such a way that they can’t be sued for collusion, so, bonus points). And, whenever they decide Agency’s not working for them anymore, they can stop.

  33. Jane
    May 20, 2012 @ 23:29:21

    @Ann Somerville – I don’t think so. The DOJ clearly hates MFNs (which is part of the price matching process) so I don’t know if those will be rejected industry wide or just for the settling parties. I don’t think that publishers much like MFNs whereas retailers do.

  34. Ann Somerville
    May 20, 2012 @ 23:40:59

    @Jane:
    Sorry – ‘MFNs’ ?

  35. Sunita
    May 21, 2012 @ 00:07:26

    Most Favored Nation clauses. The DOJ has been scrutinizing them because of concerns they inhibit competition rather than foster it. Here is an article on DOJ scrutiny of MFN clauses in health insurance.

  36. Ann Somerville
    May 21, 2012 @ 00:46:25

    @Sunita:

    Thanks for that explanation.

  37. Monday Motivation « Sophia Parkwood
    May 21, 2012 @ 05:57:53

    […] call, and a When in Rome call. And finally if you are interested in the ebook price fixing lawsuit Dear Author has been doing an amazing job covering the story. Have a great […]

  38. round-up of doooooom « jennIRL
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    […] Litte explains, among other things, what “per se” means for the Agency/DOJ case (and it’s not […]

  39. Weekly Book Travels Log for Last Week/This Week - Geeky Bloggers Book Blog | Geeky Bloggers Book Blog
    May 21, 2012 @ 07:19:25

    […]  These two articles break down a lot of what I am to “legal dumb” to explain:  What is this price-fixing lawsuit anyway?  and DOJ Lawsuit […]

  40. Tyler
    May 21, 2012 @ 07:32:49

    The only thing missing here is why Amazon priced with a discount and what that actually meant. Amazon discounted their books to keep other companies from being able to enter the market and compete by making it financially impractical to do so. Amazon could afford to take losses other companies could not on products, thus making other companies books to be at “retail price” which would appear to be more than what Amazon sold them for.

    There is no poor Amazon in this case. It was everyone trying to protect their piece of the pie.

  41. Carrie
    May 21, 2012 @ 08:02:08

    @Ann Somerville: I don’t think the sarcasm was necessary. I was simply pointing out that Amazon isn’t doing anything by trying to increase its market share that Apple hasn’t done, as well. Why get up in arms over Amazon’s practices when Apple’s are just as profit focused? I’m not defending Amazon, but it amazes me that others continually defend Apple like it isn’t up to its neck in corporate greed, too.

  42. Carrie
    May 21, 2012 @ 08:12:09

    @Tyler: Absolutely Amazon was lowering prices to increase their share of the market. That’s capitalism. It’s a standard practice in retailing. The big sales at grocery stores are called “loss leaders” because the store actually loses money on the advertized items in order to get you shopping at their store. Target does it, Walmart does it…they all do it. We can debate the ethics of such practices all day, but the fact is that it’s a standard retail strategy. Apple chose not to discount in order to increase market share and profits, but instead they (allegedly) engaged in price-fixing.

  43. Lizabeth S. Tucker
    May 21, 2012 @ 08:57:42

    My main complaints regarding Agency Pricing are twofold. First, that a group of publishers would get together to fix prices, something that was made a big no-no way back during the Oil Monopoly days. Second, that they would have the nerve to refuse to allow coupons and/or discounts to be allowed at the various bookselling sites not publisher run, such as Sony Reader Store or Kobo. The model should be as with paperbooks. You charge a bookseller a certain price for a book. They can sell it for whatever they wish, even at a loss or break-even point. The bookseller should be allowed to give loyalty programs, coupons, discounts, etc. In this case, ebooks should be no different than physical books.

    While windowing annoys me a bit, I don’t mind if an ebook is released a day later than the physical book. I do mind if it is delayed much more than that.

    I do mind paying print prices for an ebook. I do mind paying hardbooks pricing on an ebook when the paperback has been released over a year earlier. I do mind lazy editing by publishers. I do mind the lack of covers for some books, even today. I do mind being charged full book prices for some novellas.

  44. Tom
    May 21, 2012 @ 13:02:03

    Since this will be a jury trial all bets are off. The plaintiffs and defendants will not need to prove anything but just attempt to convince a jury. Jurists may not explain how they reached their decision nor are they required to do so. Basically, they are above the law. They do not have to follow the US Constitution, State and local laws. Previous Supreme Court decisions can be irrelevant. Jury decisions often surprise us when they seem to go contrary to evidence and popular sentiment.

  45. Linda Hilton
    May 21, 2012 @ 14:06:58

    @Tom: Do you mean “jurists” or “jurors”? You do understand that the terms are not interchangeable. Or maybe you don’t.

  46. Carrie
    May 21, 2012 @ 14:22:05

    @Tom: My daughter works for a litigation defense firm that routinely interviews jurors when they lose a case, and she can tell some stories. Like the time the jury (in a small town) decided for the plaintiff because they thought the defense lawyer “was arrogant” and “talked down to them.” The facts of the case didn’t matter, they just didn’t like the defense lawyer. What are you going to do in a case like that?

  47. Tom
    May 21, 2012 @ 15:20:40

    @ Linda. Yes, I meant jurors. Of course, if a jurist is on a jury, he/she can ignore their knowledge of the law.

    @ Carrie. Talking to the jury is an art form. Lawyers may be trained in how to work the jury effectively. Appealing the decision, if possible, may be an option.

  48. Edward
    May 21, 2012 @ 16:16:40

    @Carrie: I would have like to see that defense lawyer’s reaction after the verdict.

  49. Ann Somerville
    May 21, 2012 @ 21:05:05

    @Carrie:
    “others continually defend Apple like it isn’t up to its neck in corporate greed”

    My problem with your assertions is that you offer examples of ‘corporate greed’ that are nothing but good business practice – build a better product/offer a superior service, and the customers will come.

    I don’t dispute that Apple is no more ‘cuddly’ than Amazon as a business, but cornering the mp3 market by making it easy to buy them and dominating the tablet market by selling really good tablets are not evil. I don’t know why you chose such lousy examples of bad practice, when you could have chosen, for instance, Amazon and Apple’s collusion at the very least in crappy treatment of employees at the bottom of the food chain.

    I get really tired of companies being criticised for doing what companies should do – sell useful things and make money. If it’s not wrong for Mr Patel in his corner shop to pile it high and sell it cheap, it’s not wrong for Amazon or Apple, provided they aren’t breaking the law. Apple is, Amazon is not (at least – before Peter jumps down my throat – it’s not been charged or investigated for wrongdoing.)

  50. Links Ahead! | How To Write Shop
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    Jun 08, 2012 @ 19:24:34

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    Oct 13, 2012 @ 22:33:16

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  58. Bookish Rant: Apple, Amazon, Anti-Trust and the DOJ | Escape Reality, Read Fiction!
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