Statements From DoJ’s Eric Holder and Sharis Pozen on DoJ’s E-Book Price-Fixing Suit

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Both statements below, in full (H/t to Gary Price):

Attorney General Eric Holder Speaks at the E-books Press Conference
Washington, D.C. ~ Wednesday, April 11, 2012

Good afternoon.   Today I’m joined by Acting Assistant Attorney General for the Antitrust Division Sharis Pozen, and Connecticut Attorney General George Jepsen, to announce the Justice Department’s latest progress in protecting American consumers from anticompetitive harm, ensuring fairness in the marketplace, and making certain that cutting-edge technologies are available at the lowest possible price.

In recent years, we have seen the rapid growth – and the many benefits – of electronic books.   E-books are transforming our daily lives, and improving how information and content is shared.   For the growing number of Americans who want to take advantage of this new technology, the Department of Justice is committed to ensuring that e-books are as affordable as possible.

As part of this commitment, the Department has reached a settlement with three of the nation’s largest book publishers – and will continue to litigate against Apple, and two additional leading publishers – for conspiring to increase the prices that consumers pay for e-books.

Earlier today, we filed a lawsuit in U.S. District Court for the Southern District of New York, against Apple and five different book publishers – Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.   In response to our allegations, three of these publishers – Hachette, HarperCollins and Simon & Schuster – agreed to a proposed settlement.   If approved by the court, this settlement would resolve the Department’s antitrust concerns with these companies, and would require them to grant retailers – such as Amazon and Barnes & Noble – the freedom to reduce the prices of their e-book titles.   The settlement also requires the companies to terminate their anticompetitive most-favored-nation agreements with Apple and other e-books retailers.

In addition, the companies will be prohibited for two years from placing constraints on retailers’ ability to offer discounts to consumers.   They will also be prohibited from conspiring or sharing competitively sensitive information with their competitors for five years.   And each is required to implement a strong antitrust compliance program.   These steps are appropriate – and essential in ensuring a competitive marketplace.

Beginning in the summer of 2009, we allege that executives at the highest levels of the companies included in today’s lawsuit – concerned that e-book sellers had reduced prices – worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.   As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.

During regular, near-quarterly meetings, we allege that publishing company executives discussed confidential business and competitive matters – including Amazon’s e-book retailing practices – as part of a conspiracy to raise, fix, and stabilize retail prices.   In addition, we allege that these publishers agreed to impose a new model which would enable them to seize pricing authority from bookstores; that they entered into agreements to pay Apple a 30 percent commission on books sold through its iBookstore; and that they promised – through contracts including most-favored-nation provisions – that no other e-book retailer would set a lower price.   Our investigation even revealed that one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices.

In advancing this critical investigation, I’d like to thank Attorney General Jepsen and Texas Attorney General Greg Abbott – along with our partners at the European Commission – for their hard work and close cooperation.   Today’s action sends a clear message that the Department’s Antitrust Division continues to be open for business – and that we will not hesitate to do what is necessary to protect American consumers.

I am grateful for the outstanding leadership that Acting Assistant Attorney General Sharis Pozen has provided in this matter.   Not only has she ensured a seamless transition in the Division’s senior leadership, she has proven that vigorous enforcement will remain its hallmark.   I also want to commend her dedicated team, and thank each of the attorneys and investigators who worked so hard to make today’s announcement possible.   Although this matter remains in its initial stages, it’s clear that, in all of you, the Department – and the American people – could have no stronger team of advocates.

At this time, I’d like to turn things over to Sharis, who will provide additional details on today’s action.

Acting Assistant Attorney General Sharis A. Pozen Speaks at the E Books Press Conference
Washington, D.C. ~ Wednesday, April 11, 2012

Thank you Attorney General Holder.   And thank you for your leadership on this important issue for consumers.   And I am so glad that one of our enforcement partners, Attorney General Jepsen, could be here with us today.

It is important for the department to conclude its investigation and bring this action to maintain an open and competitive marketplace while we are in the early stages of this emerging technology–electronic books.   Ensuring an open and competitive marketplace allows for innovation, which is good for businesses participating in that marketplace and is good for consumers.

Make no mistake, the antitrust laws are flexible and can keep pace with technology and a rapidly changing industry.   This can be seen by our efficient and thorough investigation of this matter as well as the effective remedy we have proposed for three of the publishers.

Working with the state attorneys general and the European Commission truly makes this a global enforcement effort.   Never before have we seen this kind of cooperation on a civil antitrust enforcement matter.   I am grateful and proud of what we have been able to accomplish thus far.

The Attorney General provided details of the alleged conspiracy, which drove up e-book prices virtually overnight.   I would just like to give you a flavor of the egregiousness of the alleged behavior, which took place at the highest levels of these publishing companies by providing you with some statements from our complaint.

We allege that CEOs of the publishers bemoaned the “wretched $9.99 price point.”   One executive said that, “the goal is less to compete with Amazon as to force it to accept a price level higher than 9.99.”   And yet another said, “we’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices.”   Our complaint also quotes Apple’s then-CEO Steve Jobs as saying, “the customer pays a little more, but that’s what you [he’s referring to the publishers here] want anyway.”

As you can see, we allege that these executives knew full well what they were doing.   That is, taking steps to make sure the prices consumers paid for e-books were higher.

We believe the proposed settlement involving the three publishers–Hachette, HarperCollins and Simon & Schuster–will begin to undo the harm caused by the companies’ anticompetitive conduct, and will restore price competition so that consumers can pay lower prices for their e-books.

This remedy will restore competition to this important industry and benefit consumers.

By requiring the companies to allow retailers the freedom to lower the prices of their e-book titles, it will provide for a more open and fair marketplace.

The Attorney General mentioned that as part of the settlement, these companies will end their illegal most favored nation agreements with Apple and other e-book retailers.   I want to stress that agreements between companies that are reached unilaterally are legal and appropriate.   However, let me be clear, when companies get together and conspire to enter into agreements that eliminate price competition, it crosses the line.   This kind of agreement is illegal and anticompetitive.   That’s when the Antitrust Division will take action, as we have done today.

As the Attorney General mentioned, three of the companies–Apple, Macmillan and Penguin–have chosen to litigate this case.   We will pursue vigorously our claims against those companies to ensure that consumers get the full benefits of the competition they deserve.

I too want to acknowledge our partners in this investigation, with whom we have been working for many months.   The Attorneys General from Texas, Connecticut, Ohio and Pennsylvania are filing their own lawsuits today in federal court in Texas.   They have led the efforts of 16 states and Puerto Rico on this matter, and they have been real partners in this endeavor.

Also, from the beginning of this administration, the Antitrust Division has worked diligently to enhance its cooperation with its international antitrust colleagues.   This investigation is a shining example of how far we have come in our cooperation efforts.

I want to thank the efforts of the division’s dedicated staff on this matter.   They know the industry well and they have worked tirelessly on behalf of consumers.   I know that they will continue their fine work on this important matter.

And now, I would like to turn this over to Attorney General Jepsen who will say a few words about the states’ actions taken today.   George.

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