The e-book Antitrust Lawsuit: From an Author’s Point of View

April 13th, 2012

You might consider me a recovered computer book author. I wrote loads of them from 1994 through the early part of this century, before I grew weary of churning out four or five titles a year for a pittance. I decided there had to be a better way to make a living, although I grant you that some authors are still busy writing “Dummies,” “Missing Manuals” and other series books covering all sorts of tech subjects, and sometimes subjects that have nothing to do with technology. There are, in fact, Dummies books on religion, rugby, marriage, divorce, and lots of other subjects. But I didn’t see a “UFOs for Dummies” anywhere, so maybe I should pitch that concept.

But I never got into the e-book game, although the sci-fi novels my son and I wrote will shortly appear in that form.

On the other hand, I was intrigued by the news that the U.S. Department is going after Apple and five major book publishers for alleged collusion to set prices on e-books. Sure, a quick read leads you to believe that this is the classic conspiracy of larger companies to increase prices on the things you buy.

This whole nasty affair appears to be the outgrowth of the response by these publishers — and Apple — to Amazon’s dominance of the e-book marketplace. It wasn’t so long ago that Amazon owned the e-book market. They pulled a common stunt retailers know full well, which is the loss leader. It involves selling products at or near their wholesale cost to entice you to come to the store (or the online storefront), in the hope that you’ll buy other merchandise at the regular price.

That’s what Amazon is doing already with the Kindle e-book readers and the Fire tablet. These devices are designed to serve as portable ordering gadgets designed to conveniently display Amazon’s e-books and other merchandise.

Now with Amazon selling e-books for wholesale prices or lower, they were crowding out other merchants big time, with an over 90% share of the market. Well, the publishers decided to employ something called the “agency model,” which sets a floor for prices to be charged by retailers, so that you end up paying pretty much the same for e-books regardless of where you buy them. Now if one publisher does that, fine and dandy. If more two or more publishers come together to make such an agreement, it becomes a conspiracy, and collusion to fix prices. That appears to be the essence of the DOJ’s civil lawsuit.

So far, three of the major publishers have evidently agreed to a settlement that, in essence, will kill the agency model. Two publishers and Apple reportedly said no, which is why the lawsuit is moving forward. In a brief statement, Apple denies the charges. What’s more, the government’s chances for success may not be certain according to some published reports.

As you see, the agency model was supposedly designed to fight Amazon’s alleged “monopoly” behavior. It’s also not at all clear if all the publishers — and even Apple for that matter — actually communicated with one another to agree to use agency pricing. According to a blog post from Macmillan CEO John Sergent, that company did not make their decision in concert with any other company. He writes: “I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.”

Now unless the DOJ can prove that Sergent’s counterparts at the other publishing companies met with him during that little exercise routine or elsewhere to jointly reach that pricing decision, this may be a difficult case to establish, at  least for some of those publishers. However, the DOJ’s allegations do mention dinner meetings involving some of them.

In a sense, this whole affair seems yet further proof of the law of unintended consequences. Book publishers try to get a leg up on a supposed monopoly retailer, and end up with egg on their face.

Understand that this agency model, for however long it lasts, doesn’t necessarily impact the small publisher, or even an individual who is self-publishing. You can still set the prices you want, and Apple, Amazon or another vendor will still take their cut if they sell your book.

I suppose the larger question is how Apple’s reputation might be impacted. Their prestige may already be somewhat tarnished because of the late reaction to the Flashback malware outbreak. In the end, though, it probably won’t matter. The so-called price fixing issues that are being litigated are probably of little interest to most people. If the prices you pay for the e-books you want go down, that’s great. But how the prices got there, and whether it involved legal action or just a corporate decision, will probably be of little interest. This is one case that won’t get near the publicity of that famous antitrust action against Microsoft some years back, nor the actions taken against Microsoft by the European Union.

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12 Responses to “The e-book Antitrust Lawsuit: From an Author’s Point of View”

  1. dfs says:

    Not being a lawyer, I have no idea of what’s actually at stake, although it strikes me that this looks like a tempest in a teapot that won’t lead anywhere in particular: if anybody’s going to wind up with an eggy face and a tarnished image, more likely it will be the DOJ. But even if I’m right about this, there’s a lesson to be learned here. Back when Microsoft was the 700-pound gorilla the feds used to keep Apple on a slack rope because they saw it primarily as a useful counterweight to MS and therefore something that deserved encouragement. They could, for instance, have taken a more careful look at Apple’s policy of controlling prices at the retail level, a policy which, I seem to remember, Apple initiated some time before that practice was legalized, but they chose to look the other way. But now it’s Apple which is the 700-pound gorilla, so the DOJ is serving notice that it will henceforth be treated accordingly by having the way it conducts its business subject to closer scrutiny. Such is the inevitable price of gorillahood. Compounding the problem, maybe, is that Apple, like many Silicon Valley outfits, seems largely to be managed by essentially apolitical types who are not very sophisticated in dealing with the federal government by the use of lobbyists, campaign contributions, etc. etc. So maybe this episode ought to serve as a wake-up call to Tim Cook and co.

  2. Ponter says:

    I went back and re-read the column, but I’m still looking for the “author’s point of view.” You introduce yourself as an author, but then go on to do straight reporting on the he-said, she-said of the criminal charges. What I was expecting (from the title) was how you, as an author, are impacted under the various marketing schemes? Do you make less or more money from the “agency model?” Is your work more likely to sell under any particular model? Where do you stand <i?as an author and why?

    I think I’m with Apple on this one (not a usual thing lately), but I’m mostly in sympathy with authors, the actual creative players in the drama, without whom there’s nothing to sell after all. So I’d like to hear what authors think, rather then mere reportage regarding the parasites-in-the-middle or the DOJ (who should be pursuing real lawbreakers on Wall Street).

    • @Ponter, My reaction is implicit in the report. For most people, they won’t be impacted unless the prices change one way or the other. If you have a book published by the companies involved in that legal action, you will still have a contract that governs advances, royalties and other payments. Those agreements do not generally express retail prices, just a percentage, sometimes reduced if the vendor’s discount is higher (meaning they take a bigger piece of the pie). If prices go down, an author’s payments go down, and if they go up, they would theoretically benefit.


  3. DaveD says:

    This is a strange lawsuit. One would think that the DoJ would be wiser to focus on bringing those “bankers” who almost put our economy into an abyss to justice. But noooo, they wanted to follow Consumer Reports’ path to notoriety in antenna-gate and thermal-gate. Can’t they see that Amazon is the monopolist?

    I guess that being a big fish that Apple has to be prepared for bigger lawsuits. As long as Apple is doing the right thing by acknowledging any mistakes will be good for their reputation. What hurts you will make you stronger.

    I still think that authors should be fairly compensated for the enormous “time and effort” in creating a book. There may be little cost in delivering e-books, but there is value in the contents.

  4. Kaleberg says:

    In the 1960s there was an antitrust case against the publishers who were enforcing “suggested” retail prices. The publishers lost, and this lowered a lot of book prices. The agency model just strikes me as a way of bringing back old fashioned price fixing, rather than allowing book sellers to set the prices and take their lumps. The publishers would get the same money, but they’d lose control, and in certain businesses, control is more important than profit.

    I think the issue is that book publishers see e-books as a way of raising prices and enforcing those new higher prices by arguing that they, and not their agent, the book seller, is actually making the sale. I’d much rather see competition. France can get away with book price fixing, because they see it as a necessary subsidy to support Frech language publishing, but English language publishers need no such inducement.

  5. DaveD says:

    If my memory serves me…

    Books were put out in hardcover form first. If successful there may be a second or third printing. After the rush have died down, the book goes into paperback for a much reduced price. I don’t see why a successful selling e-book can’t be priced higher (less than hardcover on sale) in the beginning and later goes to $9.99.

  6. dfs says:

    “After the rush have died down, the book goes into paperback for a much reduced price. I don’t see why a successful selling e-book can’t be priced higher (less than hardcover on sale) in the beginning and later goes to $9.99.” Exactly. Movies are not released as DVDs until all possible box-office profit has been extracted, and I suppose that at least books by best-selling authors aren’t released as e-books until sales of print copies taper off. On the other hand, e-books facilitate the publication of a lot of non-best-sellers which otherwise would probably never see the light of day, and we have to think of the welfare of their authors as well as of the bigger fish.

  7. Al says:

    I can’t think of any other antitrust case where the DoJ filed suit to protect a monopolist that had lost its monopoly and was working to reestablish it. Amazon’s predatory pricing of eBooks is meant not only to kill other eBook retailers but the publishers themselves. This is the world that the DoJ is perhaps unwittingly trying to usher in. A world where the sole retailer and publisher of eBooks is Amazon. eBook buyers and authors better beware and make their feelings known to the DoJ.

    There very well might have been some collusion, but the DoJ should not seek a remedy that hands the eBook industry on a silver platter to Amazon. Sadly, that’s what they seem hellbent on doing.

  8. dfs says:

    Not sure it’s necessary demonize Amazon. Yes, they were the first to get involved in high-volume distribution of e-books, and in that sense for a while they did enjoy a monopoly (in the same way, you could that for a while Apple enjoyed a monopoly on smart telephones, and subsequently on tablets). But Amazon has presided over a remarkably benevolent monopoly: they seem to have operated under a philosophy of looking at the sale of e-books as a kind of loss leader to bring people to their site, under the theory that once people are in the habit of visiting Amazon they’ll buy other stuff too.

  9. Ponter says:

    “If prices go down, an author’s payments go down, and if they go up, they would theoretically benefit.”

    But how do you feel about that? If this becomes an Amazon-led race to the bottom, won’t that mean minimal income for authors, possibly making it not worth it for anyone to write except for the prestige? As a consumer, I’m all for low prices, but that doesn’t mean I want to see authors reduced to the level of Foxconn workers. (Oh. They already are? Well, I don’t want to see them worse off than Foxconn workers. Okay?)

    • @Ponter, When it comes to most production-line books, such as computer instruction titles, the authors get a fairly small amount as it is. If grosses are lower — because of lower prices — the authors will see less up front money over time (advances), because publishers will react accordingly. Potential royalties will also go down. If people buy more books as a result, that may compensate in part, but it’s not a certainty.


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