When they struck their e-book price-fixing settlements in 2012, the five agency publishers believed that, in two years, they would be free to negotiate a return to a “no-discount” agency model for e-books. But in appeal filings last week, lawyers for Simon & Schuster and Macmillan contend that Judge Denise Cote’s 2013 final order against Apple has made a timely return to a straight “no-discount” agency model all but impossible.
After finding Apple liable for price-fixing at trial last year, Cote’s final order requires Apple to retain the power to discount e-books for an extended period, and prevents Apple from simultaneously negotiating new no-discounting agency deals with the five agency publishers. Instead, Apple must negotiate with each publisher separately, in exclusive windows, staggered six months apart. Under the injunction, Hachette will be first in line to be free to cut a new "no discount" deal with Apple, sometime in the fall of 2015. But those terms have two of the settling publishers crying foul.
“The parties bargained for (and the district court approved) a two-year cooling-off period” reads a brief filed by S&S attorneys last week with the Second Circuit. However, the brief continues, S&S must "now wait four years, instead of two, to negotiate discount restrictions with at least one key retailer. And if other retailers insist on the same pricing discretion that [Cote's injunction] bestows on Apple—as Plaintiffs intended—the extension will apply across all of Simon & Schuster’s accounts.”
In other words, as PW reported in May, the publishers cannot effectively negotiate no-discount agency terms with Amazon, so long as Apple retains the court-ordered power to discount.
In their brief, lawyers for S&S pressed their argument that Cote's order illegally modifies their consent agreements, claiming that even though they will soon be free (in theory) to negotiate straight agency deals with every retailer but Apple, in practice, the order has made that difficult, if not impossible.
The briefs confirm what has long been assumed: that Apple’s order would give Amazon added leverage in their first post-settlement negotiations with publishers—after all, why would Amazon (or any retailer) sign a straight agency deal knowing that their competitor, Apple, has the exclusive power to underprice them in the e-book market? Complicating matters for the publishers, Apple, which has long insisted that it would not be a discount competitor, is now reportedly discounting Hachette e-books, as Hachette is involved in a contentious negotiation over terms of sale with Amazon.
In a separate filing, attorneys for Macmillan pressed a similar appeal. “Under its consent decree Macmillan was free to negotiate a discount-prohibiting agency agreement with all of its e-book retailers in December 2014,” their appeal brief reads. “Under the injunction on appeal, however, it may not do so until October 2017. Thus, Macmillan now has two fewer sticks in its bundle of legal rights than it did before the injunction was entered.”
In objecting to the proposed Apple injunction in 2013, the publishers called it a punitive, “thinly veiled” attempt to rewrite the terms of their settlements.
DoJ attorneys, as well as Judge Cote, however, have insisted the final order is not punitive. Yes, Apple is a key retailer, but it is also an adjudicated co-conspirator in a price-fixing scheme, DoJ attorneys argue. And, as Cote explained in delivering her order, the injunction is designed to restart price competition in the e-book market, by denying Apple and the publishers the ability to simultaneously default back to the agency model Cote believes was illegally gained.