The DOJ Settlement and Why We Should Care

Listen, what I’m attempting here is to provide a brief, boiled-down explanation of the more notable points regarding the potential impact of the recent DOJ proposed settlement.  This post is not in itself intended as a comprehensive explanation, but merely to provide a starting place for authors and writers as to how this settlement can affect them.  For further elaboration, I encourage you to click on the provided links throughout the post.

The facts in brief:

Much has been written about the recent antitrust lawsuit commenced by the US Department of Justice against Apple Inc, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, claiming the publishers colluded to fix eBook prices. They’re alleging that the CEOs all met to discuss how to respond to steeply discounted ebooks, particularly by Amazon.

If you want the detailed version, you can read the complaint here and the competitive impact statement here.

The result of those supposed meetings was the Agency Model, which basically says that instead of the traditional wholesale method (where publishers set a recommended price and retailers buy products at the wholesale price and can discount as they see fit), the publisher will set the price and the retailer must sell it at that price but will get a commission (in this case 30%).

(Here’s an interesting and detailed explanation of the Agency Model complete with pictures.)

Now, the agency model in itself is not illegal. It’s the alleged collusion that’s illegal.

After the DOJ filed the suit, three of the publishers agreed to a settlement: Hachette, HarperCollins, and Simon&Schuster. (One important thing to note is that just because they agreed to settle, it doesn’t necessarily mean they’re guilty. More likely the companies can’t or don’t want to endure the hardship and cost of the law suit.)

If you want to read the detailed version of the settlement agreement, it’s here.

And here’s a great post from Dear Author breaking down what the settlement means.

Simply, the settlement gets rid of the Agency Model, the settling publishers (Harper, Hachette and Simon & Schuster) have to sever their contract with Apple, and they have to renegotiate their contracts with each ebook distributor.

Apple, Macmillan, and Penguin have decided to defend themselves against the allegations made in the law suit. For them, the Agency Model still holds until the law suit is determined.

How does this affect you as an author:

Here’s the thing: I don’t know if the publishers colluded. And whether or not they did doesn’t matter in terms of the settlement. It’s not relevant to the legality of the Agency Model.

However, this settlement is not a good idea.

One of the terms of the settlement permits retailer discounting with the proviso that the aggregate amount of discounts that a retailer may give for any individual publisher’s titles may not exceed the aggregate amount of commissions that said retailer receives from that particular publisher.

This means that the ebook retailer is going to lump ALL of the titles for Publisher X into the TOTAL AMOUNT EARNED at the end of the year. And the discount that the ebook retailer takes can be taken from ANYWHERE in that total amount, not evenly spread across the titles. The publishers will have NO control over this, only the retailers will. So one author’s book may be sold for $.50, while another’s is sold for $9.99. While in the grand scheme of things for a retailer that means nothing to their profits, but for each individual author that can affect their royalties substantially, and thus their livelihood.

Though this is just one example, there are a number of other negative settlement terms that I encourage you to read more about—again, start here.

It’s also worth noting that the entire point of antitrust law suits in general is to prevent activity that would stifle competition in a given industry. Under the Agency Model, the publishing industry witnessed positive market affect and growth; competition increased, including new competitors in the marketplace and diversity in pricing of ebooks.  See the link below to the letter written by Simon Lipskar (President of Writers House) to the DOJ for data that supports this.

What you can do:

There’s a sixty day period where the public can voice their opinion on the settlement. The cutoff date is June 25^th. This means between now and June 25th YOU can write a letter to the Department of Justice to make your voice heard if you feel strongly on this issue.

I am working on my own letter now.

Although there are no clear cut rules about what you can/should put in your letter, here are some things to keep in mind if you do decide to write:

What should I put in my letter?

A clear, professional statement about how this settlement can negatively impact the greater industry using facts.