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Resistances to the proposed settlement by the DOJ, Hachette, HarperCollins, and...

On August 15, 2012, parties to the lawsuit were allowed to file a resistance, no longer than five pages, to the DOJ’s request that the court approve the proposed settlement between itself and three publishers.  B&N and ABA were allowed to file amicus curea briefs (or friend of the court briefs), also limited to five pages.  The Authors Guild filed a motion to file an amicus brief as well as did Bob Kohn, CEO of RoyaltyShare, a company that offers auditing services to publishers. I covered only the Authors’ Guild amicus.

I’ll address each resistance separately but the summary is that Apple, Macmillan and Penguin all argue that the DOJ hasn’t met the requirements to show that this settlement is in the public interest.  All three refer to the public as defined by the nearly 900 comments received with over 90% them opposing the settlement.  The three group “consumers” in with all the others blithely disregarding the fact that only a few consumers commented and those that did supported the settlement.

Macmillan:

The “extraordinary” actions of the government will re-establish an ebook monopoly by Amazon and Amazon’s activity is central to the suit regardless of what the DOJ (or even Cote herself) may argue otherwise. Macmillan argues that the great weight of the public comments show that the public’s interests can be met only by denying the settlement.

Comments were submitted by individuals, organizations and commercial enterprises representing every level of the publishing ecosystem, including booksellers, authors, literary agents, publishing consultants and consumers.  More than 90 percent, of the comments urged the Court not to enter the proposed Final Judgment.

Macmillan argues that the government has not engaged or at least provided any analysis as to whether the settlement may cause more harm than good by creating an environment that would increase Amazon’s current market share of 60% back to its pre Agency market share of 90%.  The failure of the DOJ to provide an analysis that Amazon won’t become a monopoly again is a failure of the Tunney Act requirements to show that the settlement is in the public interest, according to Macmillan.

Penguin:

This is more of the same.  Penguin wants DOJ to provide economic analyses to prove its claim that prices have actually increased.  DOJ blithely disregards the public interest by dismissing the over 90% of public comments that opposed the settlement.  Further, the DOJ has failed to provide empirical studies to show that ebook prices have increased.  Penguin points to B&N’s empirical analysis (which, if you recall, was the chart that B&N provided and offered no actual substantive data to back up).  Penguin also directs the court’s attention to all the indie bookstore owners who have commented and said that the price of digital books have gone down.  Penguin’s analysis, however, doesn’t offer any distinction between the average price of books purchased versus the actual prices of books available for sale.  Hundreds and thousands of digital books are free or priced under $3.99 by self published authors.  Smashwords, for example, boasts a catalog of 140,000 titles and the average price according to Mark Coker, Smashwords owner, is $2.97 and has declined since 2010 from an average price point of $4.16.

Strangely, Penguin then goes on to state that it has all the “secret sales data” that it accuses the DOJ of having and that the sales data is simply too complicated to explain in the short document.  ”It is too complicated for purposes of this short submission to in any substantive way get into all of what the data show about pre- and post- agency eBook prices.”  But the sales data is not too complicated to share that the DOJ is cherry picking prices to argue that the ebook price has increased.

Further, Penguin argues that prices pre Agency were high as well, which is the only way to explain how Amazon made money with its loss leaders.

 We have looked at pre-agency, month-by-month pricing of Penguin new releases (i.e., eBooks sold within 12 months of the release of the hardcover version) as priced and sold by Amazon during the one-year period prior to the advent of agency selling. What we found is that over 62% of the eBook titles for books with hard cover list prices over $20 (the typical range for bestsellers and other popular trade fiction) were priced by Amazon above $9.99, with many priced in the $14 to $15 dollar range. (See Exhibit A, at 1 (request to seal pending))

If there is one point we think needs to be made clear, it is that there was no uniform $9.99 price point when Amazon was authorized to price each Publisher Defendants’ eBook titles. We have looked at pre-agency, month-by-month pricing of Penguin new releases (i.e., eBooks sold within 12 months of the release of the hardcover version) as priced and sold by Amazon during the one-year period prior to the advent of agency selling. What we found is that over 62% of the eBook titles for books with hard cover list prices over $20 (the typical range for bestsellers and other popular trade fiction) were priced by Amazon above $9.99, with many priced in the $14 to $15 dollar range. (See Exhibit A, at 1 (request to seal pending)) Indeed, for six of the twelve months pre-agency, the most common price point for such eBook titles was above $12.99. The price dispersion above $9.99 can be seen at page 2 (examining weighted average prices) and page 3 (actual monthly price points) of Exhibit A. We also note that prices for any specific title also changed, sometimes dramatically, over that title’s life-cycle.

I found this argument to be a huge fail. Macmillan is arguing that Amazon is going to price everyone out of business yet Penguin was noting that pre-Agency, Amazon was engaged in higher ebook pricing too!

Apple:

Apple’s argument is somewhat different than the publishers. First, Apple argues that the rewriting of contracts is a penalty that it should not suffer until it has had its day in court, 10 months from now.  Voiding contracts is a remedy to take only after a finding of conspiracy, not on the basis of mere allegations of a conspiracy.  Second, the public (as defined by the public comments) don’t want the settlement and feel that it/they will be harmed by the settlement.  Third, a delay in ruling on the proposed judgment until a trial occurs would avoid piecemeal appeals of issues in the case.  For judicial efficiency, essentially, Apple argues that a delay makes sense.

Authors’ Guild:

Authors’ Guild argues that to allow vendors to sell ebooks at a loss would adversely affect the ebook market, the print book market, and relationships “between and among traditional and virtual booksellers.” (Virtual? No virtual about it. Real dollars exchange hands in the internet commerce world)  Authors Guild tries to impress upon the court the importance of “traditional” bookstores and how books won’t be discovered without them.

Authors Guild denies that the comments of booksellers, agents, and authors against the settlement are driven by self interest because Agency pricing results in lowered royalties for authors.  The only interest Authors Guild has, it writes, is in a robust literary marketplace and that will be destroyed if Amazon is allowed to select books willy nilly and discount them or even give them away for free.

As a side note, Authors Guild makes a good argument against DRM when it states “the Proposed Judgment will drive trade out of traditional bookstores and into the proprietary world of the Kindle.”

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

8 Comments

  1. Darlynne
    Aug 17, 2012 @ 09:52:08

    So what do we do now? Hope Judge Cote isn’t swayed by this or by the 810 alleged consumer comments against the DOJ settlement?

    ReplyReply

  2. Jane
    Aug 17, 2012 @ 09:55:25

    @Darlynne: I admit I was intensely frustrated on the characterization of public sentiment being represented by the public comments to the settlement. I am hopeful that Judge Cote will see through the self interests of many of the commenters as the Department of Justice described and use the consumer as the metric for the “public interest.”

    ReplyReply

  3. Expy
    Aug 17, 2012 @ 12:04:54

    Is any part of their argument that isn’t basically “Amazon is evil”?

    ReplyReply

  4. Anne V
    Aug 17, 2012 @ 13:25:22

    @Expy: Oh, yes. The part that is “Readers are gullible and we want the DOJ to go away so we can continue to treat them contemptuously.”

    Every time I get really spun out by terribly edited self-pubbed titles, I remind myself that those authors are at least mostly happy to have readers. Maybe not happy about being reminded of basic grammar and spelling, but at least not openly displaying the attitude about readers that the big 6 is flaunting in this case.

    ReplyReply

  5. Tom
    Aug 17, 2012 @ 14:38:55

    I thought Bob Kohn, CEO of RoyaltyShare, had the most original and interesting submission.

    ReplyReply

  6. RH
    Aug 17, 2012 @ 17:36:28

    “The three group “consumers” in with all the others blithely disregarding the fact that only a few consumers commented and those that did supported the settlement” isn’t exactly accurate. I’d have to go through every letter again probably to count exact numbers but there were at least two consumer comments against the settlement by consumers who want physical bookstores/books and are concerned about them.

    Granted, 2 or 3 isn’t a lot but as you say there were very few consumer comments in general. I counted very few pro-settlement consumer comments as well.

    ReplyReply

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