Last week, the Department of Justice announced that it was filing an antitrust lawsuit to block Penguin Random House, the largest major trade publisher in the country, from acquiring Simon & Schuster, itself one of the so-called “Big Five” publishers (formerly the Big Six, until another major acquisition of Penguin Books by Random House in 2013). And this is not the first time the publishing world has been shaken up by antitrust: in recent years, the government has also initiated major antitrust lawsuits against Apple and Amazon for how these companies price e-books they sell. In the wake of these developments, authors may be asking themselves how these antitrust cases affect the publishing ecosystem and why antitrust litigation in publishing is becoming a more common occurrence. In today’s post, we will survey the landscape of antitrust publishing litigation and explain how the proposed merger of Random House and Simon & Schuster, as well as the antitrust lawsuit intended to stop it, might affect authors.
Antitrust and Publishing
Broadly speaking, antitrust law aims to protect market competition, ensuring that no one company wields too much market power. Antitrust laws have existed in the U.S. since the late 19th century, and have the goal of protecting consumer interests by ensuring that there are “strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.” In the 21st century, the consolidation of publishing houses and book distributors over time into fewer and fewer companies with larger and larger market shares has begun to raise antitrust concerns. In this way, antitrust law seems a natural fit for publishing: over the past 50 years, publishers have steadily merged, resulting in a market dominated by only five major players.
Antitrust and E-Book Price Fixing
In recent years, the government has used antitrust law to mount challenges to various companies’ e-book pricing practices. The most prominent case was U.S. v. Apple, in which a judge found Apple had conspired with several large trade publishers to fix e-book pricing in its iBooks store, hampering retail price competition from other e-book sellers. These publishers were also implicated in the lawsuit, but elected to settle out of court. Ultimately, Apple was required to pay more than $140 million in consumer refunds in addition to other fees. More recently, a group of e-book purchasers brought a class action lawsuit against Amazon, alleging that by keeping its pricing for e-commerce lower than its competitors under a company policy, it engaged in anticompetitive behavior with regards to e-books and other products, harming purchasers of these products.
Antitrust and Authors’ Interests: United States v. Bertelsmann
The latest antitrust lawsuit in the publishing world, U.S. v. Bertelsmann (Bertelsmann is the German company that owns Penguin Random House), proceeds on a new theory of market competition. Rather than focusing on harm to consumers of books that might result from anticompetitive behavior, the Department of Justice emphasizes the harms to authors that would be likely to occur following the proposed merger. With just four major trade publishers to choose from, authors of trade books could be at a substantial disadvantage in negotiating for the best contract terms and highest advances. This is because rather than five competitors bidding for books, there would be just four, meaning less competition and less advantageous terms for authors who publish with the Big Five.
The government explains in its complaint that a Penguin Random House and Simon & Schuster merger would give that megapublisher revenues “twice that of their next closest competitor.” The new firm would wield tremendous market power, which could in turn disadvantage smaller publishing houses that lack the resources of the Big Five. Interestingly, the complaint does not discuss the fact that the 2013 merger of Penguin Books and Random House was already an unprecedented consolidation of power in the industry, as those publishers were the two largest trade publishers at the time. While this undoubtedly reduced competition between the publishers and likely harmed authors’ incomes in the same way as the new complaint alleges, no antitrust case was brought at the time. This change in the application of antitrust law to the publishing industry may be a consequence of a change in presidential administrations or the evolution of antitrust law generally.
Other authors groups have sounded the alarm about the proposed Penguin Random House and Simon & Schuster merger, emphasizing the harm that could occur to authors’ livelihoods if the merger goes through. By grounding its antitrust case in the interests of authors, the government has echoed these concerns and signaled that purchasers of books are not the only ones who matter when it comes to ensuring fairness in the book market.