Unites States of America v. Apple, Inc. et al

Filing 101

MEMORANDUM OF LAW in Support re: 100 MOTION to File Amicus Brief and Participate as Amicus Curiae.. Document filed by The Authors Guild, Inc.. (Attachments: # 1 Exhibit Memorandum of [Proposed] Amicus Curiae the Authors Guild, Inc.)(Levien, Jan)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA,
:
:
Plaintiff,
:
:
v.
:
APPLE, INC. et al.,
:
:
Defendants.
:
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12 Civ. 2826 (DLC)

MEMORANDUM OF [PROPOSED] AMICUS CURIAE THE AUTHORS GUILD, INC.
IN RESPONSE TO THE DOJ’S TUNNEY ACT FILINGS
The Authors Guild, Inc. submits this memorandum of law in response to the DOJ’s
Tunney Act Filings, Dkt. 81, 90, pending its motion for leave to appear as amicus curiae to assist
in the Court’s public interest determination regarding the Proposed Judgment against three of the
defendant publishers.
The Proposed Judgment, by requiring three major publishers to allow vendors to sell
select e-books at a loss, would have far-reaching effects on competition throughout the literary
marketplace including: (1) in the e-book market -- including the market for books themselves
and reading devices that play a critical, integral role in that market, (2) in the print book market,
and (3) between and among traditional and virtual booksellers.
The DOJ, rather than assessing the impact of the Proposed Judgment on these markets,
chooses to treat them as irrelevant. It deems the impact of the Proposed Judgment on markets
other than the market it has narrowly defined -- the market for e-books, particularly e-book
editions of newly released hardcover titles -- to be beyond the scope of the Court’s Tunney Act
inquiry. This misreads the plain language of the Tunney Act, which requires the Court to assess
whether the Proposed Judgment is in the public interest by specifically considering “the impact
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of entry of such judgment upon competition in the relevant market or markets.” 15 U.S.C. §
16(e)(1)(B). The DOJ’s narrow-gauge approach also violates the spirit of the Tunney Act and
relevant precedent, which states that the Court “should be concerned with any allegations that the
proposed settlement will injure a third party.” United States v. SBC Commc’ns, Inc. 489 F. Supp.
2d 1, 17 (D.D.C. 2007) (citing United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir.
1995)).
For these reasons, the Court should “pause or ‘hesitate’ in order to consider these [third
party] claims before reaching a conclusion that the proposed decree is appropriate.” United
States v. Microsoft Corp., 231 F. Supp. 2d 144, 152 (D.D.C. 2002) (citing United States v.
Microsoft Corp., 56 F.3d at 1462); see also United States v. Microsoft Corp., 159 F.R.D. 318,
324-25 (D.D.C. 1995) (third party input “helps to correct [any] oversights” by the DOJ) (quote
and cite omitted), rev’d on other grounds, 56 F.3d 1448.
I.

THE DOJ IMPROPERLY DISREGARDS THE WIDESPREAD IMPACT OF THE
PROPOSED JUDGMENT.
The realistic effects of the Proposed Judgment’s flawed remedy -- an effective ban on

agency agreements for two years, an extraordinary length of time in the fast-moving e-book
market -- reach far beyond the narrow new-release e-book market that the DOJ alleges. For
example, by allowing Amazon to resume selling most titles at a loss, the Proposed Judgment will
drive trade out of traditional bookstores and into the proprietary world of the Kindle.
However, traditional bookstores remain critical showrooms for works by new or lesserknown authors and for entire categories of books, such as children’s picture books. Marketing
studies consistently show that readers are far more open to trying new genres and new authors
when in a bookstore than when shopping online. Enabling Amazon to intensify its targeting of
these bookstores by allowing it to sell select e-books from three major publishers below cost -253344.1

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even giving them away, if it sees fit -- will ensure the further decline of these critical players,
diminishing readers’ choices in how and where they shop for books and narrowing the
opportunities for new authors to be discovered by readers. Of all possible remedies to the
alleged collusion, requiring three large publishers to allow Amazon to sell e-books at a loss is
among the most destructive of competition that one could imagine.
To the extent that the DOJ relies on SBC for refusing to consider the Proposed
Judgment’s impact on the entire literary market, that reliance is misplaced. First, SBC permits
the Court to consider the Proposed Judgment’s impact on all “markets implicated by the
government’s complaint.” 489 F. Supp. 2d at 14. The DOJ’s complaint explicitly implicates the
many aspects of the literary marketplace.1 Even if it did not, SBC permits the Court to consider
effects in those aspects of the market if “the limited nature of the complaint makes a mockery of
judicial power.” Id. at 13. Failing to address the relationship between the markets for e-books
and print books, both of which increasingly make the same literary content available; failing to
discuss the ties between the markets for e-books in proprietary formats and proprietary e-reading
devices (the hardware used by millions of readers); and failing to acknowledge Amazon’s utter
dominance in online bookselling anywhere outside the narrow new-release e-book market are
textbook examples of limited pleading that “violate[s] the ‘mockery’ standard.” Id.2

1

See, e.g., Compl. ¶ 3 (alleging that “Publisher Defendants feared that [Amazon’s e-book pricing] might lead
eventually to lower wholesale prices for [inter alia] lower prices for print books, or other consequences the
publishers hoped to avoid. . . . [Therefore they allegedly] conspired to raise retail e-book prices . . . .”).

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DOJ’s failure to consider the Proposed Judgment’s impact outside the new-release e-book market that the Authors
Guild addresses is far worse than any “insubstantial shortcoming” identified by SBC amici. 489 F. Supp. 2d at 21.
The SBC “shortcomings” addressed only highly specific elements of an extremely technical divestiture, such as the
quality of service offered by particular buyers of divested interests. Id. at 20-21. The Authors Guild, by contrast,
points out the DOJ’s odd refusal to consider the true effects of conduct by a firm with unparalleled heft in online
book markets. Response at 21-22 (citing Compl. ¶ 30). SBC’s finding that the “shortcomings” of the proposed
judgment there did not preclude that judgment from being “reasonably adequate” simply does not apply here.
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II.

THE DOJ MISREPRESENTS THE AUTHORS GUILD’S “INTEREST” IN THE
PROPOSED JUDGMENT.
A persistent theme in the Response is that the Authors Guild’s opposition to the Proposed

Judgment is motivated solely by economic self-interest. See Response at 2-3 (“Most of these
comments came from publishers, authors, agents, and bookstores that acknowledged an interest
in higher retail e-book prices.”).3 This accusation is false. In fact, authors earn lower royalties
under the agency model. The Authors Guild’s interest is in a healthy literary marketplace -- with
consumers having a wide range of choices of booksellers -- as this best supports a diverse range
of authors and provides a livelihood for more than a few.4 As described above, the Proposed
Judgment will result in a return to below-cost (or no cost) sales, especially of key front-list titles,
and will reduce competition as a whole.
III.

THE COURT SHOULD HOLD A HEARING TO ENSURE THAT IT IS FULLY
INFORMED ABOUT THE EFFECTS OF THE PROPOSED JUDGMENT.
According to the DOJ’s Response, it received 868 comments, but fewer than 70 of those

were supportive of the Judgment. Response at 2.5 “Where there exist third-party claims that the
entry of the proposed decree will cause affirmative harm, the district court should at least pause
or ‘hesitate’ in order to consider these claims before reaching a conclusion that the proposed
3

See also Response at v (“Critical comments generally were submitted by those who have an interest in seeing
consumers pay more for e-books, and hobbling retailers that might want to sell e-books at lower prices.”); vi (“Many
critics of the settlements view the consequences of the conspiracy--higher prices--as serving their own self-interests,
and they prefer that unfettered competition be replaced by industry collusion that places the welfare of certain firms
over that of the public.”).

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The Response cynically implies that the Guild solicited copycat comments from members who “took up the torch”
to oppose the settlement. Response at 39. The Guild’s two straightforward notices to members and the diversity of
comments received from every segment of the industry -- overwhelmingly opposed to the Proposed Judgment -speak for themselves. See http://blog.authorsguild.org/2012/06/04/the-justice-departments-e-book-proposalneedlessly-imperils-bookstores-how-to-weigh-in/ and http://www.authorsguild.org/advocacy/articles/last-call-tellthe-justice-department.html. Nor does the DOJ advance its position by cherry-picking comments to prove a point
that no one disputes -- that the views of authors are diverse on this subject. Response at 41-42.
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The Authors Guild’s Act comment, ATC-0214, may be found the Guild’s website,
http://www.authorsguild.org/advocacy/articles/guilds-tunney-act-filing-to-the.html, and the DOJ’s website,
http://www.justice.gov/atr/cases/apple/comments/atc-0214.pdf.
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decree is appropriate.” Microsoft, 231 F. Supp. 2d at 152 (citing Microsoft, 56 F.3d at 1462); see
also SBC, 489 F. Supp. 2d at 17 (“the court should be concerned with any allegations that the
proposed settlement will injure a third party”).
The Authors Guild respectfully urges the Court to hold a hearing or take other steps
within its power under 15 U.S.C. § 16(f) to thoroughly assess the impact of the Proposed
Judgment on competition in vital literary markets and submarkets. Should the Court hold such a
hearing, the Authors Guild respectfully requests that the Court permit the Authors Guild to
participate. Doing so will help ensure that the Court is “adequately informed about the
intricacies and complexities of the industry affected by the consent decree.” See Microsoft, 159
F.R.D. at 325. Moreover, if the Court holds a hearing, we believe it will find the DOJ’s proposal
represents a needlessly risky intervention in the book market. The DOJ’s goal of undoing
alleged collusion can be achieved with far less risk to competition.
Dated: August 15, 2012
Respectfully submitted,
THE AUTHORS GUILD, INC.
By:
/s
Jan Friedman Levien
Jan Friedman Levien (Constantine)
[e-mail]
Paul D. Aiken
[e-mail]
31 East 32nd Street, 7th Floor
New York, New York 10016-5509
[phone]
Motion for Leave to Appear
as Amicus Curiae Pending

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