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UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
_________________________________________
UNITED STATES OF AMERICA,
Plaintiff,
v.
APPLE, INC.,
HACHETTE BOOK GROUP, INC.,
HARPERCOLLINS PUBLISHERS L.L.C.,
VERLAGSGRUPPE GEORG VON
HOLTZBRINCK GMBH,
HOLTZBRINCK PUBLISHERS, LLC
d/b/a MACMILLAN,
THE PENGUIN GROUP,
A DIVISION OF PEARSON PLC,
PENGUIN GROUP (USA), INC., and
SIMON & SCHUSTER, INC.,
Defendants.
_
Civil Action No. 1:12-CV-2826

COMPETITIVE IMPACT STATEMENT Pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA” or “Tunney Act”), 15 U.S.C. §§ 16(b)–(h), Plaintiff United States of America (“United States”) files this Competitive Impact Statement relating to the proposed Final Judgment against Defendants Hachette Book Group, Inc. (“Hachette”), HarperCollins Publishers L.L.C. (“HarperCollins”), and Simon & Schuster, Inc. (“Simon & Schuster”; collectively with Hachette and HarperCollins, “Settling Defendants”), submitted on April 11, 2012, for entry in this antitrust proceeding.
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I. NATURE AND PURPOSE OF THE PROCEEDING
On April 11, 2012, the United States filed a civil antitrust Complaint alleging that Apple, Inc. (“Apple”) and five of the six largest publishers in the United States (“Publisher Defendants”) restrained competition in the sale of electronic books (“e-books”), in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
Shortly after filing the Complaint, the United States filed a proposed Final Judgment with respect to Settling Defendants. The proposed Final Judgment is described in more detail in Section III below. The United States and Settling Defendants have stipulated that the proposed Final Judgment may be entered after compliance with the APPA, unless the United States withdraws its consent. Entry of the proposed Final Judgment would terminate this action as to Settling Defendants, except that this Court would retain jurisdiction to construe, modify, and enforce the proposed Final Judgment and to punish violations thereof.1
The Complaint alleges that Publisher Defendants, concerned by Amazon.com, Inc. (“Amazon”)’s pricing of newly released and bestselling e-books at $9.99 or less, agreed among themselves and with Apple to raise the retail prices of e-books by taking control of e-book pricing from retailers. The effect of Defendants’ agreement has been to increase the price consumers pay for e-books, end price competition among e-book retailers, constrain innovation among e-book retailers, and entrench incumbent publishers’ favorable position in the sale and distribution of print books by slowing the migration from print books to e-books. The Complaint seeks injunctive relief to enjoin continuance and prevent recurrence of the violation.
1 The case against the remaining Defendants will continue. Those Defendants are Apple, Verlagsgruppe Georg von Holtzbrinck GmbH and Holtzbrinck Publishers, LLC d/b/a Macmillan (collectively, “Macmillan”), and The Penguin Group, a division of Pearson plc and Penguin Group (USA), Inc. (collectively, “Penguin”).
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II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION OF THE ANTITRUST LAWS
A. The E-Books Market
Technological advances have enabled the production, storage, distribution, and consumption of books in electronic format, lowering significantly the marginal costs to publishers of offering books for sale. E-books can be read on a variety of electronic devices, including dedicated devices (“e-readers”) such as Amazon’s Kindle or Barnes & Noble, Inc.’s Nook, tablet computers such as Apple’s iPad, desktop or laptop computers, and smartphones. E-book sales are growing, and e-books are increasingly popular with American consumers. E-books conservatively now constitute ten percent of general interest fiction and non-fiction books (commonly known as “trade” books) sold in the United States and are widely predicted to reach at least 25 percent of U.S. trade books sales within two to three years.
Until Defendants’ agreement took effect, publishers sold e-books under a wholesale model that had prevailed for decades in the sale of print books. Under this wholesale model, publishers typically sold copies of each title to retailers for a discount (usually around 50%) off the price printed on the physical edition of the book (the “list price”). Retailers, as owners of the books, were then free to determine the prices at which the books would be sold to consumers. Thus, while publishers might recommend prices, retailers could and frequently did compete for sales at prices significantly below list prices, to the benefit of consumers.
In 2007, Amazon became the first company to offer a significant selection of e-books to consumers when it launched its Kindle e-reader device. From the time of its Kindle launch, Amazon offered a portion of its e-books catalogue, primarily its newly released and New York Times-bestselling e-books, to consumers for $9.99. To compete with Amazon, other e-book retailers often matched or at least approached Amazon’s $9.99-or-less prices for e-book versions
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of many new releases and New York Times bestsellers. As a result of that competition, consumers benefited from Amazon’s $9.99-or-less e-book prices even when they purchased e-books from competing e-book retailers.
B. Illegal Agreement to Raise E-Book Prices
Publisher Defendants, however, feared that the Amazon-led $9.99 price for e-books would significantly threaten their long-term profits. Publisher Defendants feared $9.99 e-book prices would lead to the erosion over time of hardcover book prices and an accompanying decline in revenue. They also worried that if $9.99 solidified as consumers’ expected retail price for e-books, Amazon and other retailers would demand that publishers lower their wholesale prices, again compressing their profit margins. Publisher Defendants also feared that the $9.99 price would drive e-book popularity to such a degree that digital publishers could achieve sufficient scale to challenge the Publisher Defendants’ basic business model.
In private meetings among their executives, Publisher Defendants complained about the “$9.99 problem” and the threat they perceived it posed to the publishing industry.2 Through these communications, each Publisher Defendant gained assurance that its competitors shared concern about Amazon’s $9.99 e-book pricing policy.
At the same time, each Publisher Defendant feared that if it attempted unilaterally to impose measures that would force Amazon to raise retail e-book prices, Amazon would resist. And each Publisher Defendant recognized that, even if it succeeded in raising retail prices for its e-books, if its competitor publishers’ e-books remained at the lower, competitive level, it would
2 Prior to the formation of and throughout Publisher Defendants’ agreement, their CEOs and other high-level executives frequently communicated with each other in both formal and informal settings. From these communications emerged a pattern of Publisher Defendants improperly exchanging confidential, competitively sensitive information.
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lose sales to other Publisher Defendants. Accordingly, Publisher Defendants agreed to act collectively to raise retail e-book prices.
To effectuate their agreement, Publisher Defendants considered a number of coordinated methods to force Amazon to raise e-book retail prices. For example, they explored creating purported joint ventures, with exclusive access to certain e-book titles. These joint ventures were intended not to compete with Amazon, but to convince it to raise its price above $9.99. Publisher Defendants intended these strategies to cause Amazon to capitulate on its $9.99 pricing practice. None of these strategies, though, ultimately proved successful in raising retail e-book prices.
It was Apple’s entry into the e-book business, however, that provided a perfect opportunity collectively to raise e-book prices. In December 2009, Apple approached each Publisher Defendant with news that it intended to sell e-books through its new iBookstore in conjunction with its forthcoming iPad device. Publisher Defendants and Apple soon recognized that they could work together to counter the Amazon-led $9.99 price.
In its initial discussions with Publisher Defendants, Apple assumed that it would enter as an e-book retailer under the wholesale model. At the suggestion of two Publisher Defendants, however, Apple began to consider selling e-books under the “agency model,” whereby the publishers would set the prices of e-books sold and Apple would take a 30% commission as the selling agent. In January 2010, Apple sent to each Publisher Defendant substantively identical term sheets that would form the basis of the nearly identical agency agreements that each Publisher Defendant would sign with Apple (“Apple Agency Agreements”). Apple informed the publishers that it had devised these term sheets after “talking to all the publishers.”
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The volume of Publisher Defendants’ communications among themselves intensified during the ensuing negotiation of the Apple Agency Agreements. Through frequent in-person meetings, phone calls, and electronic communications, Publisher Defendants, facilitated by Apple, assured each other of their mutual intent to reach agreement with Apple. After each round of negotiations with Apple over the terms of their agency agreements, Publisher Defendants’ CEOs immediately contacted each other to discuss strategy and verify where each stood with Apple. They also used Apple to verify their position vis-à-vis other Publisher Defendants. Penguin, for example, sought Apple’s assurance that it was “1 of 4 before signing”—an assurance that Apple provided. Two days later, Penguin and two other Publisher Defendants signed Apple Agency Agreements.
To the extent Publisher Defendants expressed doubts during the negotiations about whether to sign the Apple Agency Agreements, Apple persuaded the Publisher Defendants to stay with the others and sign up. For example, Apple CEO Steve Jobs wrote to an executive of one Publisher Defendant’s corporate parent that the publisher had only two choices apart from signing the Apple Agency Agreement: (i) accept the status quo (“Keep going with Amazon at $9.99”); or (ii) continue with the losing windowing policy (“Hold back your books from Amazon”). According to Jobs, the Apple deal offered the Publisher Defendants a superior alternative path to the higher retail e-book prices they sought: “Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”
The Apple Agency Agreements contained two primary features that assured Publisher Defendants of their ability to wrest pricing control from retailers and raise e-book retail prices above $9.99. First, Apple insisted on including a Most Favored Nation clause (“MFN” or “Price MFN”) that required each publisher to guarantee that no other retailer could set prices lower than
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what the Publisher Defendant set for Apple, even if the Publisher Defendant did not control that other retailer’s ultimate consumer price. The effect of this MFN was twofold: it not only protected Apple from having to compete on retail price, but also dictated that to protect themselves from the MFN’s provisions, Publisher Defendants needed to remove from all other e-book retailers the ability to control retail price, including the ability to fund discounts or promotions out of the retailer’s own margins.3 Thus, the agreement eliminated retail price competition across all retailers selling Publisher Defendants’ e-books.
Second, the Apple Agency Agreements contained pricing tiers (ostensibly setting maximum prices) for e-books—virtually identical across the Publisher Defendants’ agreements—based on the list price of each e-book’s hardcover edition. Defendants understood that by using the price tiers, they were actually fixing the de facto prices for e-books. In fact, once the Apple Agency Agreements took effect, Publisher Defendants almost uniformly set e-book prices to maximum price levels allowed by each tier. Apple and Publisher Defendants were well aware that the impact of their agreement was to force other retailers off the wholesale model, eliminate retail price competition for e-books, allow publishers to raise e-book prices, and permanently to change the terms and pricing on which the e-book industry operated.
The negotiations between Apple and Publisher Defendants culminated in all five Publisher Defendants signing the Apple Agency Agreements within a three-day span, with the last Publisher Defendant signing on January 26, 2010. The next day, Apple announced the iPad at a launch event. At that event, then-Apple CEO Steve Jobs, responding to a reporter’s question about why customers should pay $14.99 for an iPad e-book when they could purchase that e-book for $9.99 from Amazon or Barnes & Noble, replied that “that won’t be the case. . . . The
3 Otherwise, the retail price MFN would cause Apple’s iBookstore prices to drop to match the best available retail price of each e-book, reducing the revenues to each Publisher Defendant and, indeed, defeating the very purpose of agreeing to the agency model: raising retail prices across all e-book retailers.
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prices will be the same.” Jobs later confirmed his understanding that the Apple Agency Agreements fulfilled the publishers’ desire to increase prices for consumers. He explained that, under the agreements, Apple would “go to [an] agency model, where [publishers] set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what [publishers] want anyway.”
Starting the day after the iPad launch, Publisher Defendants, beginning with Macmillan, quickly acted to complete their scheme by imposing agency agreements on all of their other retailers. Initially, Amazon attempted to resist Macmillan’s efforts to force it to accept either the agency model or windowing of its e-books by refusing to sell Macmillan’s titles. Other Publisher Defendants, continuing their practice of communicating with each other, offered Macmillan’s CEO messages of encouragement and assurances of solidarity. For example, one Settling Defendant’s CEO e-mailed Macmillan’s CEO to tell him, “I can ensure you that you are not going to find your company alone in the battle.” Quickly, Amazon came to realize that all Publisher Defendants had committed themselves to take away any e-book retailer’s ability to compete on price. Just two days after it stopped selling Macmillan titles, Amazon capitulated and publicly announced that it had no choice but to accept the agency model.
After Amazon acquiesced to the agency model, all of Publisher Defendants’ major retailers quickly transitioned to the agency model for e-book sales. Retail price competition on e-books had been eliminated and the retail price of e-books had increased.
C. Effects of the Illegal Agreement
As a result of Defendants’ illegal agreement, consumers have paid higher prices for e-books than they would have paid in a market free of collusion. For example, the average price for Publisher Defendants’ e-books increased by over ten percent between the summer of 2009
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and the summer of 2010. On many adult trade e-books, consumers have witnessed an increase in retail prices between 30 and 50 percent. In some cases, the agency model dictates that the price of an e-book is higher than its corresponding trade paperback edition, despite the significant savings in printing and distributing costs offered by e-books.
Beyond this monetary harm to consumers, Defendants’ agreement has prevented e-book retailers from experimenting with innovative pricing strategies that could efficiently respond to consumer demand. Because retailer discounting is prohibited by the agency agreements, retailers have been prevented from introducing innovative sales models or promotions with respect to Publisher Defendants’ e-books, such as offering e-books under an “all-you-can-read” subscription model where consumers would pay a flat monthly fee.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The relief contained in the proposed Final Judgment is intended to provide prompt, certain and effective remedies that will begin to restore competition to the marketplace. The requirements and prohibitions will eliminate the Settling Defendants’ illegal conduct, prevent recurrence of the same or similar conduct, and establish robust antitrust compliance programs.
A. Required Conduct (Section IV)4
1. Sections IV.A and IV.B
To begin to restore competition to the e-books marketplace, the proposed Final Judgment requires the Settling Defendants to terminate immediately the Apple Agency Agreements that they used to collusively raise and stabilize e-book prices across the industry. Section IV.A of the proposed Final Judgment orders the Settling Defendants to terminate those contracts within seven days after this Court’s entry of the proposed Final Judgment. This requirement will permit
4 Sections I–III of the proposed Final Judgment contain a statement acknowledging the Court’s jurisdiction, definitions, and a statement of the scope of the proposed Final Judgment’s applicability.
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the contractual relationships between Apple and the Settling Defendants to be reset subject to competitive constraints.
The Apple Agency Agreements included MFN clauses that ensured Publisher Defendants would take away retail pricing control from all other e-book retailers. Accordingly, Section IV.B requires the termination of those contracts between a Settling Defendant and an e-book retailer that contain either (a) a restriction on an e-book retailer’s ability to set the retail price of any e-book, or (b) a Price MFN. Under the proposed Final Judgment, termination will occur as soon as each contract permits, starting 30 days after the Court enters the proposed Final Judgment.5 All of Settling Defendants’ contracts with major e-book retailers contain one of these provisions and would be terminated. Section IV.B also allows any retailer with such a contract the option to terminate its contract with the Settling Defendant on just 30 days notice. These provisions will ensure that most of Settling Defendants’ contracts that restrict the retailer from competing on price will be terminated within a short period.
E-book retailers, including Apple, will be able to negotiate new contracts with any Settling Defendant. But, as set forth in provisions described below, the proposed Final Judgment will ensure that the new contracts will not be set under the collusive conditions that produced the Apple Agency Agreements. Sections V.A–B of the proposed Final Judgment prohibit Settling Defendants, for at least two years, from including prohibitions on retailer discounting in new agreements with retailers. Additionally, a retailer can stagger the termination dates of its contracts to ensure that it is negotiating with only one Settling Defendant at a time to avoid joint conduct that could lead to a return to the collusively established previous outcome.
5 The proposed Final Judgment defines a “Price MFN” to include most favored nation clauses related to retail prices, wholesale prices, or commissions.
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2. Section IV.C
As part of their conspiracy to raise and stabilize e-book prices, the Publisher Defendants discussed forming joint ventures, the purpose of which was, as Publisher Defendants’ executives described it, “less to compete with Amazon as to force it to accept a price level higher than 9.99,” and to “defend against further price erosion.” To reduce the risk that future joint ventures involving Settling Defendants could eliminate competition among them, Section IV.C of the proposed Final Judgment requires a Settling Defendant to notify the Department of Justice before forming or modifying a joint venture between it and another publisher related to e-books. That provision sets forth a procedure for the Department of Justice to evaluate the potential anticompetitive effects of joint activity among Publisher Defendants at a sufficiently early stage to prevent harm to competition.
3. Section IV.D To ensure Settling Defendants’ compliance with the proposed Final Judgment, Section
IV.D requires Settling Defendants to provide to the United States each e-book agreement entered into with any e-book retailer on or after January 1, 2012, and to continue to provide those agreements to the United States on a quarterly basis.
B. Prohibited Conduct (Section V)
1. Sections V.A, V.B, and V.C
Sections V.A and V.B ensure that e-book retailers can compete on the price of e-books sold to consumers. Specifically, the proposed Final Judgment prohibits Settling Defendants from enforcing existing agreements with or entering new agreements containing two components of the Apple Agency Agreements that served as linchpins to their conspiracy—the ban on retailer
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discounting (eliminating all price competition among retailers) and the retail price-matching MFNs that ensured agency terms were exported to all e-book retailers.
Sections V.A and V.B of the proposed Final Judgment prohibit Settling Defendants, for two years after the filing of the Complaint, from entering new agreements with e-book retailers that restrict the retailers’ discretion over e-book pricing, including offering discounts, promotions, or other price reductions. These provisions do not dictate a particular business model, such as agency or wholesale, but prohibit Settling Defendants from forbidding a retailer from competing on price and using some of its commission to offer consumers a better value, either through a promotion or a discount. Under Section V.A, a Settling Defendant also must grant each e-book retailer with which it currently has an agreement the freedom to offer discounts or other e-book promotions for two years. With these provisions, most retailers will soon be able to discount e-books in order to compete for market share.
These measures prohibit Settling Defendants, for a two-year period, from completely removing e-book retailers’ discretion over retail prices. In light of current industry dynamics, including rapid innovation, a two-year period, in which Settling Defendants must provide pricing discretion to retailers, is sufficient to allow competition to return to the market.
Section V.C prohibits Settling Defendants, for five years, from entering into an agreement with an e-book retailer that contains a Price MFN. Defendants knew that the inclusion of the Price MFN in the Apple Agency Agreements would lead to the adoption of the agency model by all of Publisher Defendants’ e-book retailers. The proposed Final Judgment therefore broadly defines banned “Price MFNs” to include not only MFNs requiring publishers to match retail e-book prices across e-book retailers (the MFNs in the Apple Agency Agreements), but also MFNs requiring publishers to match the wholesale prices at which e12
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books are sold to e-book retailers, and MFNs requiring publishers to match the revenue share or commission given to other e-book retailers. Prohibiting these particular Price MFNs serves an important function to prevent Settling Defendants from using MFNs to achieve substantially the same result they effected here through their collusive agreements.
2. Section V.D
Section V.D prohibits Settling Defendants from retaliating against an e-book retailer based on the retailer’s e-book prices. Specifically, this Section prohibits a Settling Defendant from punishing an e-book retailer because the Settling Defendant disapproves of the retailer discounting or promoting e-books. This Section also prohibits a Settling Defendant from urging any other e-book publisher or e-book retailer to retaliate against an e-book retailer, as Penguin did. However, Section V.D expressly recognizes that, after the expiration of the two-year period described in Sections V.A and V.B, the anti-retaliation provision does not prohibit Settling Defendants from unilaterally entering into and enforcing agency agreements with e-book retailers that restrict a retailer’s ability to set or reduce e-book prices or offer promotions.
3. Sections V.E and V.F
Section V.E of the proposed Final Judgment broadly prohibits Settling Defendants from agreeing with each other or another e-book publisher to raise or set e-book retail prices or coordinate terms relating to the licensing, distribution, or sale of e-books. This Section bans the kind of agreements among Publisher Defendants that led to the anticompetitive increase in e-book prices.
Section V.F likewise prohibits Settling Defendants from directly or indirectly conveying confidential or competitively sensitive information to any other e-book publisher. Such information includes, but is not limited to, business plans and strategies, pricing strategies for
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books, terms in retailer agreements, or terms in author agreements. Banning such communications is critical here, where communications among publishing competitors were condoned by and carried out as common practice at the highest levels of the companies and led directly to the collusive agreement alleged in the Complaint. Because these communications occurred among some of the parent companies of the Publishing Defendants, Section V.F also applies to those parent company officers who directly control Settling Defendants’ business decisions. Settling Defendants are not prohibited from informing the buying public of the list prices of their books or engaging in ongoing legitimate distribution relationships with other publishers.
C. Permitted Conduct (Section VI)
Section VI.A of the proposed Final Judgment expressly permits Settling Defendants to compensate e-book retailers for services that they provide to publishers or consumers and help promote or sell more books. Section VI.A, for example, allows Settling Defendants to support brick-and-mortar retailers by directly paying for promotion or marketing efforts in those retailers’ stores.
Section VI.B permits a Settling Defendant to negotiate a commitment from an e-book retailer that a retailer’s aggregate expenditure on discounts and promotions of the Settling Defendant’s e-books will not exceed the retailer’s aggregate commission under an agency agreement in which the publisher sets the e-book price and the retailer is compensated through a commission. In particular, Section VI.B grants Settling Defendants the right to enter one-year agency agreements that also prevent e-book retailers from cumulatively selling that Settling Defendant’s e-books at a loss over the period of the contract. An e-book retailer that enters an agency agreement with a Settling Defendant under Section VI.B would be permitted to discount
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that Settling Defendant’s individual e-book titles by varying amounts (for example, some could be “buy one get one free,” some could be half off, and others could have no discount), as long as the total dollar amount spent on discounts or other promotions did not exceed in the aggregate the retailer’s full commission from the Settling Defendant over a one-year period. This provision, which works with Sections V.A and V.B (which enhance retailers’ ability to set e-book prices), allows a Settling Defendant to prevent a retailer selling its entire catalogue at a sustained loss. Absent the collusion here, the antitrust laws would normally permit a publisher unilaterally to negotiate for such protections.
D. Antitrust Compliance (Section VII)
As outlined in Section VII, as part of the compliance program, each Settling Defendant must designate an Antitrust Compliance Officer. The Antitrust Compliance Officer must distribute a copy of the proposed Final Judgment to the Settling Defendant’s officers, directors, and employees (and their successors) who engage in the licensing, distribution, or sale of e-books. The proposed Final Judgment further requires the Antitrust Compliance Officer to ensure that each such person receives training related to the proposed Final Judgment and the antitrust laws; to ensure certification by each such person of compliance with the terms of the proposed Final Judgment; to conduct an annual antitrust compliance audit; to be available to receive information concerning violations of the proposed Final Judgment and to take appropriate action to remedy any violations of the proposed Final Judgment; and to maintain a log of communications between officers and directors of Settling Defendants, involved in the development of strategies related to e-books, and any person associated with another Publisher Defendant, where that communication relates to the selling of books in any format in the United States.
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Appointment of an Antitrust Compliance Officer is necessary in this case given the extensive communication among competitors’ CEOs that facilitated Defendants’ agreement, among other things. The United States has required the submission of Settling Defendants’ e-book agreements to facilitate the monitoring of the e-book industry and to ensure compliance with the proposed Final Judgment.
To facilitate monitoring compliance with the proposed Final Judgment, Settling Defendants must make available, upon written request, records and documents in their possession, custody, or control relating to any matters contained in the proposed Final Judgment. Settling Defendants must also make available their personnel for interviews regarding such matters. In addition, Settling Defendants must, upon written request, prepare written reports relating to any of the matters contained in the proposed Final Judgment.
IV. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
At several points during its investigation, the United States received from some Publisher Defendants proposals or suggestions that would have provided less relief than is contained in the proposed Final Judgment. These proposals and suggestions were rejected.
The United States considered, as an alternative to the proposed Final Judgment, a full trial on the merits against Settling Defendants. The United States believes that the relief contained in the proposed Final Judgment will more quickly restore retail price competition to consumers.
V. REMEDIES AVAILABLE TO PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages the person has suffered, as well as costs and reasonable
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attorneys’ fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust damage action. Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. § 16(a), the proposed Final Judgment has no prima facie effect in any subsequent private lawsuit that may be brought against Publisher Defendants or Apple.
VI. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT
The United States and Settling Defendants have stipulated that the proposed Final Judgment may be entered by this Court after compliance with the provisions of the APPA, provided that the United States has not withdrawn its consent. The APPA conditions entry of the decree upon this Court’s determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least sixty (60) days preceding the effective date of the proposed Final Judgment within which any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so within sixty (60) days of publication of this Competitive Impact Statement in the Federal Register, or the last date of publication in a newspaper of the summary of this Competitive Impact Statement, whichever is later.
All comments received during this period will be considered by the United States Department of Justice, which remains free to withdraw its consent to the proposed Final Judgment at any time prior to the Court’s entry of judgment. The comments and the responses of the United States will be filed with the Court and published in the Federal Register.
Written comments should be submitted to:
John Read, Chief
Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street, NW, Suite 4000
Washington, DC 20530
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The proposed Final Judgment provides that the Court retains jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for modification, interpretation, or enforcement of the Final Judgment
VII. STANDARD OF REVIEW UNDER THE APPA FOR THE PROPOSED FINAL JUDGMENT
The Clayton Act, as amended by the APPA, requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the court shall determine whether entry of the proposed Final Judgment “is in the public interest.” 15 U.S.C. § 16(e)(1). In making that determination, the court is directed to consider:
(A)
the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and
(B)
the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.
15 U.S.C. § 16(e)(1)(A) & (B); see generally United States v. KeySpan Corp., 763 F. Supp. 2d 633, 637–38 (S.D.N.Y. 2011) (WHP) (discussing Tunney Act standards); United States v. SBC Commc’ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing standards for public interest determination). In considering these statutory factors, the court’s inquiry is necessarily a limited one as the United States is entitled to “broad discretion to settle with the Defendant within the reaches of the public interest.” United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995).
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Under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the United States’ complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the relief secured by the decree, the court’s function is “not to determine whether the proposed [d]ecree results in the balance of rights and liabilities that is the one that will best serve society, but only to ensure that the resulting settlement is within the reaches of the public interest.” KeySpan, 763 F. Supp. 2d at 637 (quoting United States v. Alex Brown & Sons, Inc., 963 F. Supp. 235, 238 (S.D.N.Y. 1997)) (internal quotations omitted). In making this determination, “[t]he [c]ourt is not permitted to reject the proposed remedies merely because the court believes other remedies are preferable. [Rather], the relevant inquiry is whether there is a factual foundation for the government’s decision such that its conclusions regarding the proposed settlement are reasonable.” Id. at 637–38 (quoting United States v. Abitibi–Consolidated Inc., 584 F. Supp. 2d 162, 165 (D.D.C. 2008).6 The government’s predictions about the efficacy of its remedies are entitled to deference.7
Courts have greater flexibility in approving proposed consent decrees than in crafting their own decrees following a finding of liability in a litigated matter. “[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is ‘within the reaches of public interest.’” United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting
6 United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981) (“The balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General.”). See generally Microsoft, 56 F.3d at 1461 (discussing whether “the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the ‘reaches of the public interest’”). 7 Microsoft, 56 F.3d at 1461 (noting the need for courts to be “deferential to the government’s predictions as to the effect of the proposed remedies”); United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant due respect to the United States’ prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case).
19
Case 1:12-cv-02826-UA Document 5 Filed 04/11/12 Page 20 of 22
United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff’d sub nom. Maryland
v. United States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy). To meet this standard, the United States “need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.” SBC Commc’ns, 489 F. Supp. 2d at 17.
Moreover, the court’s role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint, and does not authorize the court to “construct [its] own hypothetical case and then evaluate the decree against that case.” Microsoft, 56 F.3d at 1459; KeySpan, 763 F. Supp. 2d at 638 (“A court must limit its review to the issues in the complaint . . . .”). Because the “court’s authority to review the decree depends entirely on the government’s exercising its prosecutorial discretion by bringing a case in the first place,” it follows that “the court is only authorized to review the decree itself,” and not to “effectively redraft the complaint” to inquire into other matters that the United States did not pursue. Microsoft, 56 F.3d at 1459–60.
In its 2004 amendments, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that “[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.” 15 U.S.C. § 16(e)(2). This language effectuates what Congress intended when it enacted the Tunney Act in 1974, as Senator Tunney explained: “[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process.” 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney).
20
Case 1:12-cv-02826-UA Document 5 Filed 04/11/12 Page 21 of 22
Rather, the procedure for the public interest determination is left to the discretion of the court,
with the recognition that the court’s “scope of review remains sharply proscribed by precedent
and the nature of Tunney Act proceedings.” SBC Commc’ns, 489 F. Supp. 2d at 11.8
VIII. DETERMINATIVE DOCUMENTS
There are no determinative materials or documents within the meaning of the APPA that
were considered by the United States in formulating the proposed Final Judgment.
Dated: April 11, 2012
Respectfully submitted,
FOR PLAINTIFF THE UNITED STATES OF AMERICA
s/ Daniel McCuaig_________________ Daniel McCuaig Nathan P. Sutton Mary Beth McGee Owen M. Kendler William H. Jones Stephen T. Fairchild
Attorneys for the United States United States Department of Justice Antitrust Division Litigation III 450 Fifth Street, NW, Suite 4000 Washington, DC 20530
8 See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting that the “Tunney Act expressly allows the court to make its public interest determination on the basis of the competitive impact statement and response to comments alone”).
21
Case 1:12-cv-02826-UA Document 5 Filed 04/11/12 Page 22 of 22
CERTIFICATE OF SERVICE
I, Stephen T. Fairchild, hereby certify that on April 11, 2012, I caused a true and correct copy of the foregoing Stipulation and attached Proposed Final Judgment to be
served via electronic mail on:
For Defendant Apple, Inc.: Richard Parker O’Melveny & Myers LLP 1625 Eye Street, NW Washington, DC 20006 rparker@omm.com
For Defendant Hachette Book Group, Inc.: Paul Yde Freshfields Bruckhaus Deringer LLP 701 Pennsylvania Avenue, NW Suite 600 Washington, DC 20004-2692 paul.yde@freshfields.com
For Defendant HarperCollins Publishers L.L.C.: Clifford H. Aronson Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 clifford.aronson@skadden.com
For Defendants Verlagsgruppe Georg von Holtzbrinck GmbH & Holtzbrinck Publishers, LLC d/b/a Macmillan: Joel M. Mitnick Sidley Austin LLP 787 Seventh Avenue New York, NY 10019 jmitnick@sidley.com
For Defendants The Penguin Group, A Division of Pearson PLC & Penguin Group (USA) Inc.: Daniel F. McInnis Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, NW Washington, DC 20036-1564 dmcinnis@akingump.com
For Defendant Simon & Schuster, Inc.: Helene D. Jaffe Proskauer Rose LLP Eleven Times Square New York, NY 10036-8299 hjaffe@proskauer.com
s/ Stephen T. Fairchild Stephen T. Fairchild United States Department of Justice Antitrust Division 450 Fifth Street, NW, Suite 4000 Washington, D.C. 20530

Something Fishy Served Up at Picholine?

Is this a joke?

A Melville House posting by Kelly Burdick has allegedly unearthed email exchanges among executives of some Big Six Publishers plus Steve Jobs of Apple setting up a dinner to discuss “the $9.99 problem”. The email thread comes from “From deep inside the files of the Justice Department”, says Melville, and if verified will explain why the Department of Justice pressed its collusion case – and why at least three of the accused settled.

Clearly, the interchanges didn’t pass DoJ’s smell test. Does it pass yours? Here is the email that allegedly started it (reproduced, deletions and all, from the Melville House posting):

From: Makinson, John (jMakinson@us.penguingroup.com)
To: jSargent@macmillan.com, xxxx@hachettebookgroup.com, xxxx@harpercollins.com, xxxx@simonandschuster.com, dShanks@us.penguingroup.com, xxx@xxxxxxxx.com
cc: steve@apple.com
Date: Monday, September 22, 2008, 10:46am
Subject: the $9.99 problem

Let’s get together again and keep discussing the “the $9.99 problem.” Where and when works?

For the complete thread read The Collusion Files: how it really happened by Kelly Burdick. Is this true or have we been punked?

Richard Curtis

This blog post was originally published on Digital Book World as On the Dinner Menu: Fishy Discussions about “$9.99 Problem”

After complying with the draconian reporting requirements imposed by the Department of Justice, the three publishers that have settled to avoid prosecution may wish they’d fought the charges. The conditions are just a little less stringent than house arrest. We will not be surprised to hear that executives at Simon & Schuster, Harper or Hachette have been fitted with ankle monitors.

Richard Curtis

Here is a summary of the compliance requisites for the parties that settled (from Publishers Weekly):

Compliance:
This is the most onerous part of the settlement, and helps explain why Macmillan and and Penguin have decided to fight. Under the Settlement, each publisher will have to engage in a number of compliance measures including:

The appointment of an “Anti-Trust Compliance Officer,” reporting directly to the company’s general counsel.

In addition, the publishers must provide at least “four hours of training” for relevant staff delivered by an attorney and conduct “an annual compliance audit.”

The Settling Publishers must also furnish to the DoJ “on a quarterly basis” electronic copies of any non-privileged communications containing allegations of noncompliance and must “maintain and furnish to the Department of Justice on a quarterly basis, a log of all oral and written communications, excluding privileged or public communications,” between the publishers “officers, directors, or employees” involved in the development of the Settling Defendant’s plans or strategies relating to e-books.

Under the Settlement, the DoJ can also inspect the publishers’ offices, and “require Settling Defendants to provide to the United States hard copy or electronic copies of all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Settling Defendants, relating to any matters contained in this Final Judgment.”

DoJ officials can also interview “either informally or on the record” the Settling Defendants’ “officers, employees, or agents.” But, if you’re tabbed, you do get to bring your an attorney.

And, upon request, the Settling publishers must submit “written reports or respond to written interrogatories, under oath if requested,” relating to any of the matters contained in the settlement.

This blog post was originally published on Digital Book World as Compliance Requirements for Publishers That Settled: Everything But Ankle Monitors

Unlike its Big Six colleague Macmillan, HarperCollins elected to settle with the Department of Justice over the controversial Agency business model, rather than go through a trial. (For a full backgrounder read Apple Promoting a New (and Radical!) Business Model for Selling E-Books? and Publishing’s Weekend War: 48 Hours That Changed an Industry)

Harper’s press release below.
Richard Curtis
*******
Contact:
Erin Crum
Vice President, Corporate Communications
HarperCollins Publishers
(212) 207-7223
Erin.Crum@harpercollins.com
FOR IMMEDIATE RELEASE
HarperCollins Publishers Settles e-Book Pricing Dispute with the Department of Justice
New York, NY (April 11, 2012) — HarperCollins Publishers today announced that it has reached an agreement with the United States Department of Justice to end its investigation into HarperCollins’ contracts for the distribution of e-books. HarperCollins did not violate any anti-trust laws and will comply with its obligations under the agreement. HarperCollins’ business terms and policies have been, and continue to be, designed to give readers the greatest choice of formats, features, value, platforms and partners – for both print and digital.
After HarperCollins adopted the agency model in 2010, the e-book market exploded, giving consumers more choices of devices, formats and prices that would never have existed but for the agency model. Some examples include:
 The iBookstore, which offers iTunes customers a storefront to buy HarperCollins’ books
 The launch of Barnes & Noble’s NOOK Book Store, which grew faster than any other platform for HarperCollins’ titles over the last two years
 Prices for dedicated e-readers declined from almost $400 to under $100, and competition exploded in the device market, making the e-book reading experience less expensive
 Dynamic pricing of HarperCollins’ e-books, including some titles priced under $2, was introduced to maximize the sales and reach of our authors and their books
 The introduction of color tablets with native e-book stores led by Apple and Barnes & Noble, which are now the fastest selling devices for e-book consumers
 The introduction and rapid development of enhanced e-books with audio, video and interactivity, which are a fast-growing digital format for HarperCollins
HarperCollins faced legal challenges on five separate fronts, including the DOJ investigation which was resolved today. The e-book market has grown over the last two years from a small e-ink market, dominated by one platform, to a $1B market with several competing platforms. HarperCollins made a business decision to settle the DOJ investigation in order to end a potentially protracted legal battle.
About HarperCollins Publishers
HarperCollins, one of the largest English-language publishers in the world, is a subsidiary of News Corporation (NYSE: NWS, NWS.A; ASX: NWS, NWSLV). Headquartered in New York, HarperCollins has publishing groups around the world including the HarperCollins General Books Group, HarperCollins Children’s Books Group, Zondervan, HarperCollins UK, HarperCollins Canada, HarperCollins Australia/New Zealand and HarperCollins India. HarperCollins is a broad-based publisher with strengths in literary and commercial fiction, business books, children’s books, cookbooks, mystery, romance, reference, religious and spiritual books. With nearly 200 years of history HarperCollins has published some of the world’s foremost authors and has won numerous awards including the Nobel Prize, the Pulitzer Prize and National Book Award, the Newbery Medal and the Caldecott. Consistently at the forefront of innovation and technological advancement, HarperCollins is the first publisher to digitize its content and create a global digital warehouse to protect the rights of its authors, meet consumer demand and generate additional business opportunities. You can visit HarperCollins Publishers on the Internet at http://www.harpercollins.com.
###

After taking a year to consider its options and observe how e-book retailers were faring with the agency model, Random House today announced it was committing itself to that model, the last of the Big Six publishers to do so. The most significant aspect of this move is that Amazon is aboard. Last year when the pricing standard was adopted by the other five major houses, a bitter war broke out between Amazon and Macmillan.  There will be no such event in this instance, as Random and Amazon have worked out an agreement.

To place this news in context, last year we wrote the following story, Random Goes Rogue:

Random House will go against the recent rush by its Big Six buddies to the “agency” e-book retail model recently introduced by Apple.

Apple’s approach is for publishers to retain control over the list price, rather than allowing the list price to be pegged by the e-tailer, as is currently employed by Amazon. It also allows publishers flexibility in timing release of e-books – delaying them rather than releasing them simultaneously with publication of hardcover editions.

The move to the Apple model by three major houses spearheaded by Macmillan was the cause of a controversy that triggered removal of Macmillan’s buy buttons by Amazon for a week, at the end of which the e-book retailing landscape was altered, possibly forever. (For background see Apple Promoting a New (and Radical!) Model for Selling E-Books? and Publishing’s Weekend War: 48 Hours that Changed an Industry.)

Random’s decision is based on two approaches to e-book publishing that are at odds with the philosophy of at least three of its fellow publishers. A RH spokesperson voiced the opinion that publishers “have no real experience at setting retail prices.” That explains why Random held back from embracing Apple’s iPad tablet. The other reason is timing of e-book releases. “Our current policy is we release e-books at the same time as physical books,” she said. “I haven’t been convinced that it’s good for the author or consumer to delay the release.”

You can read details here: Random House sides with Amazon, e-book readers on pricing

Random’s press release is reprinted in full below.

STATEMENT FROM RANDOM HOUSE, INC. REGARDING ITS U.S. E-BOOK SALES MODEL

“Random House, Inc. is adopting the agency model for e-book sales in the United States effective March 1, 2011. Going forward, Random House will set consumer prices for the e-books we publish, and we will provide retailers with a commission for each sale. There are no changes to our terms of sale for physical books.

“The agency model guarantees a higher margin for retailers than did our previous sales terms. We are making this change both as an investment in the successful digital transition of our existing partners and in order to give us the opportunity to forge new retail relationships.

“We are looking forward to continuing to work with all our retail partners – both digital and physical — on our joint mission to connect our authors with as many readers as possible, in whatever format they prefer.”

Richard Curtis

Remember the shooting war a year ago January when Amazon dimmed the Buy Buttons on Macmillan books over the issue of the agency etail business model? To refresh your memory read Publishing’s Weekend War: 48 Hours That Changed an Industry

A lot of authors were caught in the crossfire.  But the CEO’s of both companies have presented them with a gift to make it up to them.  In his letter accompanying Macmillan’s semi-annual royalty statements CEO John Sargent informs authors and agents that Macmillan and Amazon have jointly created an “Amazon Kindle Outage Adjustment” compensating them for royalties they would have received had the trade war not suspended business.  Sargent explains how the adjustment was calculated:

“…You may also see an item toward the bottom of your statement called Amazon Kindle Outage Adjustment. Most of these adjustments were processed last royalty period but some are being finalized now. We believe it was not fair that authors should suffer from the Amazon buy button takedown imposed on us for a week last year when we switched over to the agency model. So we estimated as best we could what Kindle sales would have been for that week and processed the royalties on those sales as if they had happened. Amazon felt the same way and graciously split the cost with us. Interestingly, from what we could discover, almost all non-Kindle Amazon sales migrated to other outlets.”

We agree that it is a gracious gesture on the part of both industry leaders and though there may still be some bruised feelings and lost revenue, we wanted to give credit where it is due for the good will.

There was another gift from Sargent in his covering letter which you may read in its entirety here.

Richard Curtis

Dear Authors, Illustrators and Agents,

As you all know, there has been tremendous growth and change in the digital book market over the last year, The purpose of this note is to explain two favorable adjustments we have made to your earnings on e-book sales during the past royalty period in light of the events of last year.

On April 1st 2010, Macmillan adopted the agency model for selling our e-books and, in doing so, we accomplished two extremely important goals to help ensure that the publishing business remains healthy for both you and us. The first, and most important one, was to create a level playing field for electronic book distribution. Amazon had been providing the e-book versions of new release hardcovers at $9.99, considerably under Amazon’s cost, making it very difficult for anyone else to prosper or even enter the market. Since we moved to the agency model, Apple has entered the market, Barnes and Noble has increased its investment in the business, and independent booksellers, working with Google, are now selling your books competitively in the electronic book market. Second, by successfully setting the price on the e-book versions of first release hardcovers above $9.99. We have been able to prove that the consumer does in fact place a value higher than $9.99 on first release electronic books.

The long term ramifications of both these changes are enormous. What was previously a digital business with only one real player (who was getting dangerously close to a monopolistic position, fueled by aggressive pricing) is now a much healthier marketplace where many can compete and distribute your books at prices determined by the market.

All of this is the context for answering the question I’m sure is on your mind: What about my royalties?

Your enclosed statement includes e-book royalties if we sold an e-book of your work during the May 1 through October 31 royalty period. Almost every contract we had in effect during this royalty period sets an escalating royalty (10%/12.5%/15%) based on the list price of the book. Under the agency model, the list price is the end price to the consumer, so your contractual earned royalties would therefore be the number of e-books sold multiplied by the list price of the e-book and then multiplied by the royalty rate.

Meanwhile, the publishing industry standard for electronic book royalty rates has clearly settled 25% of net receipts, which is the rate that we now offer in our publishing contracts for new books. This rate produces higher royalty earnings than the list price based rate.

We have therefore made the decision for this royalty period to increase your royalty to 25% of net receipts. We are presenting this adjustment in your attached royalty statement by first backing out your contractual electronic book royalty earnings (so you can see what they were) and then adding in the new higher royalty earnings according to new agency model calculation. We have only made this adjustment if it works in your favor (which is almost universally the case).

If you have not previously signed an amendment adjusting your contractual royalty on e-books to 25% of net receipts and you would like us to continue making this adjustment in future royalty periods, we need you to amend your contracts with us… [Contact information deleted here]

In addition to the favorable royalty recalculation mentioned above, you may also see an item toward the bottom of your statement called Amazon Kindle Outage Adjustment. Most of these adjustments were processed last royalty period but some are being finalized now. We believe it was not fair that authors should suffer from the Amazon buy button takedown imposed on us for a week last year when we switched over to the agency model. So we estimated as best we could what Kindle sales would have been for that week and processed the royalties on those sales as if they had happened. Amazon felt the same way and graciously split the cost with us. Interestingly, from what we could discover, almost all non-Kindle Amazon sales migrated to other outlets.

It is hard to see into next month never mind next year. Our business is in the midst of an enormous transformation. But do know that we are in this together and that our interests are aligned. We at Macmillan will keep working for a piracy-free, competition-friendly digital marketplace for your works, while supporting the bricks and mortar retailers for the ink-and-paper books that we all cherish. It is, as always, a great delight to be your publisher.

I hope this letter has been helpful. If you have questions about your statements please contact our Royalty Accounting Department.

All best,

John Sargent

According to top Penguin executives, writes Wall Street Journal‘s Jeffrey Trachtenberg, the company has reached a detente with Amazon to conclude a price war that lasted about a month. The behemoth retailer, responding negatively to the agreement Penguin reached with competitor Apple, had turned off the Buy buttons on Penguin titles. The dispute centers on the fact that Apple’s business model is vastly different from Amazon’s, putting the latter at a competitive disadvantage. (For background, read Are We Capitulated Yet? Amazon Turns its Guns on Penguin.)

As part of the settlement, writes Publishers Lunch’s Michael Cader, Amazon “presumably” will switch to the same model as Apple, but if experience is any guide, in all likelihood that will result in higher e-book prices that may dampen customer enthusiasm. Penguin presumably understands that and is willing to trade curtailed sales for greater control over the way its books are sold through third parties.

RC

Do you think there’s enough confusion and acrimony surrounding the “agency” e-book retail model (see Apple Promoting a New (and Radical) Business Model for Selling E-Books?). If you don’t, there’s a new issue heading your way that should satisfy your hunger for controversy.

Michael Cader, influential founder of online book trade newsletter Publishers Lunch, has asked who is responsible for collecting and paying sales taxes on e-book sales?

If you didn’t know that such taxes are payable you’re not alone.  Under the system in effect until the “agency” model was introduced, retailers were responsible for collecting any sales taxes that might be charged on e-book sales. However, under the Apple model, retailers become in effect agents for the publishers, placing the burden of collection and reporting on the publishers’ shoulders. It’s a burden that could seriously hobble a lot of publishers when they have to fill out tax forms in dozens of state venues.

Apple has authorized a number of companies like Scribd, LibreDigital and Ingram to serve as authorized “aggregators” who will in effect process publisher content and deliver it to Apple for a fee or commission. Will collection of sales taxes be part of their services? The answer is murky. “So far,” says Cader, “the aggregators we have spoken to have different understandings of what obligations if any they have in tax reporting and collection.”

Stay tuned for more about this matter, which is certainly going to heat up.

The only certain things in life are death and taxes.  Unless the this matter is addressed cleanly and expeditiously, death is going to begin to look like a viable alternative for publishers.

Richard Curtis

Early in March John Sargent, CEO of Macmillan, issued a policy statement setting the course of his company and its component imprints such as St. Martins Press, Picador, Farrar Straus & Giroux, and Tor Books. He promised more such statements from time to time, and last week posted on the Macmillan website the second of them in which he boiled down to four the questions raised by people commenting on his initial blog.

As we approach Passover we wondered if these were the same four questions traditionally asked by children concerning the meaning of the holiday, which celebrates God’s rescue of the Israelites from Egypt. We thus posted this picture of Charlton Heston as Moses before we realized that the four questions raised by Macmillan’s correspondents were different from those posed at the Seder table. We decided to leave the picture up, however, as we are hopeful that “with a mighty arm and outstretched hand” Sargent will lead his company to the promised land and perhaps drag some Big Six publishing colleagues with him.

The questions are:

1) What is the difference between a “hardcover” and “paperback” e book?

2) Will retailers have flexibility to price books at a discount?

3) How can we trust Macmillan to carry out its pricing pledge?

4) Will we be re-pricing e books that have a $14.00 digital list price while there is a mass market paperback edition available?

For the answers, click here. All together now: “On all other nights…”

Sargent promises more commentary soon, “including author royalties…”

We welcome his outreach, look forward keenly to more of his enlightening clarifications, and thank him for his initiative and leadership.

Richard Curtis