Judge Cote Approves eBook Settlement, Deems Case "Straightforward Price Fixing"

PublishersLunch

After months of comments, filings, and responses, Judge Denise Cote didn't waste any time in approving the Department of Justice's settlement with Hachette, HarperCollins, and Simon & Schuster, moving it out of her docket and potentially over the Court of Appeals. Judge Cote was not persuaded that there was anything to be learned at an evidentiary hearing, "given the voluminous submissions" already filed "as well as the detailed factual allegations in the Complaint" and said the court was "well-equipped to rule on these matters."

At the end of the day, she believed the government "more than met [the] minimal standard" that they provide an ample "factual foundation for the government's decisions such that its conclusions regarding the proposed settlement are reasonable." She added that "the role of the court is not to determine whether the decree results in the array of rights and liabilities 'that will best serve society, but only to ensure that the resulting settlement is within the reaches of the public interest.'" One key finding that dismantles at least some of the objections is her notation that "the complaint alleges not merely that the defendants signed contracts of agency and utilized Price MFNs, but that they used these tools together in furtherance of a horizontal price-fixing conspiracy." 

Judge Cote is also mindful that the settling publishers, who have not spoken during the process, "have elected to settle this dispute and save themselves the expense of engaging in discovery. They are entitled to the benefits of that choice and the certainty of a final judgment." While Apple argued to wait until a trial among those who are choosing to defend themselves, the judge observes that "the orderly, efficient management of discovery requires that the Settling Defendants have a defined role in the ongoing litigation. Apple's proposal would leave them in a state of legal limbo, forced to participate in discovery and defend this action at trial for fear that their settlement may be thrown out."

At the same time, the judge took respectful note of the many objections filed during the comment period. "Clearly, this is no ordinary Tunney Act proceeding.... 
Given the sheer volume of comments opposing entry of the proposed Final Judgment and the significant harm that these comments fear may result, hesitation is clearly appropriate in this case." Among those comments, she concluded that "perhaps the most forceful species of criticism leveled at the decree is that it will have manifestly anticompetitive effects. The comments make a variety of arguments along these lines; the gist of their critique, however, is that Amazon was a monopolist engaged in predatory pricing and other anticompetitive practices, defendants’ use of the agency model reduced Amazon’s market share and capacity to engage in these practices, and the consent decree will encourage a return to the anticompetitive status quo." She rejects these arguments for a variety of reasons, including the reasoning that "even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing."

In approving the settlement, she wrote that "whereas the complaint alleges unlawful communications and industry collusion that gave rise to a series of agreements designed to ensure defendants’ use of agency pricing for e-books, the proposed Final Judgment disallows such communications and unravels both the Agency Agreements and agreements with other e-book retailers implementing the broader shift to agency pricing."

With the settlement stipulating the settling publishers can't use a pure, unrestricted agency model for two years -- "wholly appropriate" per the judge -- and from using most favored nation pricing for at least five years, Cote finds it to be "reasonably calculated to restore retail price competition to the market for trade e-books, to return prices to their competitive level, and to benefit ebooks consumers and the public generally, at least as to the competitive harms alleged."

Judge Cote applauded the DOJ for "concluding, reasonably, that entry of the proposed Final Judgment would more quickly restore retail price competition to consumers than a trial."
Cote Opinion