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Monday Morning News: Timeline of the pricefixing lawsuit, Digital readers being spied on, and

Monday Morning News: Timeline of the pricefixing lawsuit, Digital readers being...

I’m changing things up a little.  More and more people apparently read the news roundup that I post every day and therefore I’ve decided to post the news posts first thing in the morning.  That’s when most people read the news and thus Dear Author can be a consistent morning routine for individuals who come for the news but not the reviews.

The reviews will be posted at 8 am and 12 pm CST followed by the deals posting in the afternoon around 2 or so.  I’m still fiddling with the time.

In any event, start your day with Dear Author for a timely and interesting set of curated news links.

First up today is a review of the price fixing lawsuit.  The court has entered a trial schedule for the combined cases and denied Penguin’s request to move the cases to arbitration.  There are some interesting and important deadlines.

  • July 6, 2012 – New initial report must be filed reflecting the scheduling order.  A deadline for initial disclosures will be set. It was for July 2 but I’m not sure if that date will hold up.  The initial disclosures are mandated by Rule 26 of the Federal Rules of Civil Procedure. They were enacted to require parties to not procrastinate and move cases faster through the system.  The initial disclosures will be the only interesting thing to read until next year when summary judgment motions are filed. Each parties’ initial disclosures must include the following:
    • Witnesses:  the name and, if known, the address and telephone number of each individual likely to have discoverable information—along with the subjects of that information—that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment;
    • Exhibits:  a copy—or a description by category and location—of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment;
    • Damages:  a computation of each category of damages claimed by the disclosing party—who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered
  • July 9, 2012 – the State AGs and Class Action Plaintiffs file their initial disclosures because they do not have to file anything that duplicates the DOJ’s list of disclosures.
  • July 11, 2012 – the settling defendants have to renew their request for a stay of the proceedings.
  • July 27, 2012 – DOJ to file for entry of the proposed Judgment.
  • August 8, 2012 – Responses to the DOJ’s motion for entry of proposed judgment. Cannot exceed 5 pages. Expect the parties to wax ad naseum about Amazon although the settling defendants will likely put forward supportive statements.
  • August 15, 2012 – Response by the DOJ
  • I would expect some type of ruling to occur by September.  Then the settlement terms kick in:
    • Within 7 days, the Settling Defendants (Hachette, HarperCollins, and Simon & Schuster) will need to sever their contracts with Apple.
    • Within 30 days, contracts that restrict an ebook retailers ability to set the price of an ebook or a most favored nation clause must be broken. Amazon would be a retailer with whom publishers have an MFN clause.  This is the time that discounting will begin.
  • September 13, 2012 – Motions for summary judgment.  This will be good reading. 
  • October 4, 2012 – Responses due.
  • Nov 16, 2012 – motion to certify class must be filed.
  • April 26, 2013- Pretrial order
  • April 16, 2012 – Motions in limine (this is a motion parties file to keep evidence out)
  • May 24, 2013 – Final Pretrial
  • June 3, 2013 – Trial begins (also when BEA 2013 begins)

I think there were some errors in the docket entry and hopefully the status report filed on the 6th will clear those up.

Penguin had filed a motion to stay (halt) any proceedings against them in civil court arguing that the arbitration clauses in the nook and Kindle agreements applied to Penguin as well because Amazon and BN were agents of Penguin.  The arbitration clauses of the nook and Kindle expressly forbid class actions and direct claims to arbitration.

The court denied the motion based on two provisions.  One, an individual can’t waive right to pursue antitrust claims in civil court.  Two, the class action plaintiffs showed the court that they would not be able to “effectively vindicat[e] their federal statutory rights” in arbitration. The plaintiffs satisfied the court that individual arbitration cases would be prohibitive for one consumer to bring.

In this case, the plaintiffs have presented … detailed affidavits demonstrating that, given the complexities of proving this particular antitrust violation, plaintiffs can expect at most a median recovery of $540 in treble damages, and face several hundred thousand dollars to millions of dollars in expert expenses alone. Plaintiffs have also demonstrated that they are likely to incur significant expenses in securing, organizing, and maintaining documents, deposing witnesses, and
in attorneys’ fees, and that they face no guarantee of recovering any or all of these expenses. Plaintiffs have already expended $45,000 in expert expenses evaluating the claims and drafting the complaint. Plaintiffs’ affidavits demonstrate that it would be economically irrational for any
plaintiff to pursue his or her claims through an individual arbitration. Penguin has presented no serious argument to the contrary.

The court did leave open the door to consider whether the plaintiffs’ state law claims could be heard in arbitration but stated that Penguin was unlikely to prevail. Each state has their own individual antitrust laws. If you recall, retail price maintenance, for example, was found to be illegal in the state of Kansas according Kansas’ state antitrust laws.

One other point of interest, the State AGs sent a letter to Judge Cote agreeing that the States agree to a bench trial on liability and injunctive relief but want a jury trial on the damages.  I thought it was interesting that the letter references injunctive relief as I think that if the settlement isn’t approved, there will be a filing for injunctive relief shortly thereafter.

Dear Author

What Kind of Competition Has Retail Price Maintenance for Digital Books...

Last week, news came out that the Justice Department was readying a petition to sue five of the largest publishing houses in North America along with Apple for colluding together to maintain artificially high prices for digital books.

This was initially instituted in January 2010 after Macmillan pulled its entire digital catalog from Amazon unless Amazon concede to these new terms. Under the new terms, Macmillan would set the prices for digital books and Amazon and every other retailer would not be allowed to discount. This became known as Agency pricing, but the term “Agency pricing” is a misnomer. What the publishers are doing is engaging in retail price maintenance, not Agency pricing.

Amazon had been discounting popular front list digital titles heavily, marketing their nascent digital book program as having most of its digital content priced at $9.99 and under. Discounting is commonplace for paper books with large wholesalers like Costco and Sam’s Club pricing hardcovers at 40% or more off. Barnes & Noble also heavily discounts print bestsellers.

However, publishers worried that low digital prices would speed up the adoption of digital books, create large losses for print books, and wreak havoc with their current business model. Further, allowing Amazon to undercut prices would imperil others attempts to enter the market.

William Lynch is quoted as saying that agency pricing helped Barnes & Noble achieve its 25-27% of the market.  I’ve argued as much here.  Much discussion around Agency pricing involves the issue of competitiveness. It appears that the publishers (not Apple) are going to argue that without agency pricing, market competitiveness would decrease.  They will point to the decline in print sales as an example.  The goal of publishers will likely be to get a broad definition of the market such that it includes both paper books and digital books; trade fiction and non fiction; and academic works.  This likely works both for and against them.  First, Amazon only has market dominance in the trade fiction and non fiction categories in digital works.  It does not have market dominance in the digital textbook market, the print textbook market or even the print trade market.

The publishers will point out that Amazon’s aggressive digital pricing is dooming independent bookstores and contributing to a decline of print book sales and a decline in businesses selling print books.  The question that publishers will not be able to answer, however, is how Agency pricing helped to increase competitiveness at the increased price to customers.  First, there has not been an attendant rise of independent brick and mortar bookstores since 2010 when the publishers impose retail price maintenance on print books.  Second, there has not been an attendant rise of independent digital bookstores since 2010.  In observing independent digital bookstores on the internet, the move toward RPM was dismay not jubilation.  Kobo Books had to discontinue consumer oriented programs as did Fictionwise and All Romance eBooks.

Lori James of All Romance EBooks shared her thoughts on this matter.

1. We at All Romance appreciate the publisher’s desire to control pricing. We have direct relationships with hundreds of publishers and since the day we opened our contract has stipulated that we will not change the sale price of their work without permission.

2. Under the Agency model we can not offer incentives. We do offer incentives from time to time for Non-Agency, but that is our cost, not the publisher’s cost. In those cases, customers still pay full price for the Work. So, for example, we can spotlight a non-Agency publisher like Harlequin and offer customers a 30% rebate to purchase Harlequin titles for a two week period. Those purchases are for the full list price and Harlequin get’s paid based on the full list price. The cost of the promotion is completely ours and Harlequin enjoys increase sales and tons of brand advertising for free. As things stand we can’t offer that to Agency Publishers. It’s the same with our loyalty program and our bookclub. I understand they don’t want the offering of incentives to dilute pricing. But I don’t think a flat-out policy that they can’t happen is best either and it’s placing Agency titles at a disadvantage.

3. There was much talk originally about how Agency would level the playing field for the little guy who couldn’t hope to engage in the kind of loss leader pricing Amazon was doing. Instead, we could compete based on “service”. Yeah! We’re great at service. It sounded good. Then the content was pulled. It was many months before contracts were even available for initial review. Meanwhile – it’s back on Amazon and B&N. It’s on Apple. Getting Agency back was a priority but it took over a year to get those titles back due to numerous delays. And, this also required significant IT build-outs.

Meanwhile, fortunately, our customer base found many other titles they were interested in and continued to purchase. The loss of Agency didn’t end up really impacting our bottom line because we were in a unique position, having strong relationships with Indies who were supplying our customer base with a steady stream of delicious romance. Would we have done even better with Agency during that year? Yes. It’s hard to compete without content.

I have to wonder how many of the bookstores that were getting content prior to Agency are approved and still getting content today. And, it would be interesting to know how many new Indies have entered the arena. From where I sit, the numbers seem to be shrinking.

Agency pricing (aka Retail Price Maintenance) was designed to slow the adoption of ebooks, bolster print sales, and move marketshare away from Amazon.  It was not designed to increase competitiveness in the market.   I don’t think any one disagrees that one publisher and one retailer of books is a bad idea.  No one, not even a card carrying Amazon Prime member like I am believes that.  As Amazon becomes larger, it pushes for more concessions from its suppliers.  Publishers are getting squeezed and it would not surprise me in the least if Amazon reduces the self publishing royalties using exclusivity as the modifier.   But artificially maintaining a higher cost of a good isn’t increasing competition in the marketplace.  No one will leave Amazon until something better comes along and in this case, with prices being equal, you can’t beat Amazon’s service.  The question will be what will?  My ideas include Loyalty and rewards programs.  Better search and filter options.  More targeted recommendation services.  What are yours?