Amazon and Hachette: The Dispute in 13 Easy Steps

A great piece in the LA Times explaining why the Amazon-Hachette dispute matters. The best quote:

"What's ultimately at stake is whether Amazon is going to be able to freely and permanently bully publishers into eventual nonexistence." -- John Green, author of The Fault in Our Stars.

BTW, #10 explains why Hachette is in Amazon's crosshairs, and why the other four major publishing houses can expect the same treatment if something doesn't change.

Update: my literary agent tells me that I really need to turn on the commenting feature in my blog. I'd kept it turned off because I've had some really bad experiences with Internet trolls. But, at his behest, I'm going to give it a test run and turn on comments for a few selected blog entry just to see what happens. Please justify my tenuous faith in humanity's capacity for civility.

"Authors to rebuke Amazon over Hachette dispute with full-page NYT ad"

From AppleInsider:

Nearly 1,000 authors affected by the ongoing e-book spat between Amazon and machete have signed their names to a letter — set to run as a full-page advertisement in the Sunday New York Times later this week — imploring the online retailer to settle the dispute and calling on readers to voice their displeasure directly to Amazon CEO Jeff Bezos.

To my literary brothers and sisters, I say, "booyah." You can read the letter here; and here's a good perspective from the New York Times on how this is affecting individual authors.


Apple vs. DOJ e-Book Case: Judge Cote's Guilty Verdict "Impossible"

On Friday, Judge Denise Cote reversed course and signed off on the Apple-DOJ plea bargain, thereby eliciting the single best explanation I've seen as to why the Appeals Court should overturn Cote's guilty verdict against Apple in the e-book anti-trust case.

"Antitrust experts in particular were outrage at the verdict as under that section of the law it should be impossible for a 'vertical' reseller (like Apple) to join a 'horizontal' conspiracy amongst publishers. Cote also ignored evidence that other booksellers had previously urged publishers to force Amazon to use the 'agency' model (where publishers set prices) before Apple even began planning its iBookstore business as Amazon's predatory pricing at the time was preventing competitors from joining the market."

Note the word "impossible." Analysts love words like "impossible" because they set up a binary choice that usually isn't hard to evaluate — something is either impossible or it's not. 

Never mind the verdict's other problems which I've listed off and linked to before — anti-trust experts are asserting that, as a matter of black-letter law, a vertical reseller like Apple can't be part of a horizontal conspiracy like the one DOJ says existed among the publishing houses...legally, it's "impossible." That's no mere technicality. If that's true, here's the binary choice:

1. DOJ prosecutors and Judge Cote were incompetent and didn't understand the relevant case law; or

2. They did know the law and ignored it for reasons I won't speculate on here.

Incompetence or bias. If the anti-trust experts are right, there are no other possible conclusions.

Apple vs DOJ e-Book Case: The Plot Thickens...

Called it. Judge Cote wants the deescalation clause pulled from Apple's settlement agreement with the DOJ.

"U.S. District Judge Denise Cote in Manhattan said she found 'most troubling' a clause requiring Apple to pay only $70 million if an appeals court reversed her finding that the company is liable for antitrust violations and sent it back to her for further proceedings.

Speaking on a teleconference, Cote questioned if that would be fair and what might happen if the appeals court reversed her ruling on a minor issue."

A lawyer for the plaintiffs said he doesn't think that's likely and, given the problems inherent in retrying such a case, $70 million "would be a good outcome for consumers."

When a judge insists on a settlement amount from a defendant higher than the law requires and the plaintiff requests, it's probably a good sign that the judge dislikes the defendant.

Read the whole Rueters article here.

Apple vs DOJ e-Book Case: Settlement Agreement a Poison Pill?

Yes, I'm still harping on the Apple e-book anti-trust saga. Every writer and book lover ought to be paying attention to it. The outcome will decide the future of book publishing in the US. And, as an analyst, I find it fun mental exercise to parse through possible outcomes of stuff like this. If any readers are lawyers, feel free to correct my misunderstandings about the legalities over on my Facebook page.

The latest bit of news is that Apple agreed to pay $450 million to settle the inevitable class-action lawsuit that resulted Judge Denise Cote verdict that Apple colluded in price-fixing with publishers.

"The settlement was first announced last month, but the terms of the deal were not announced at that time. With the news of a $450 million agreement, Apple would save nearly $400 million from the $840 million the lawsuit originally sought, if it were to have gone to trial.

While Apple has agreed to the terms, they must still be ratified by U.S. District Judge Denise Cote. If the court's ruling that Apple violated antitrust laws is affirmed, consumers will receive $400 million from Apple."

This wasn't unexpected. Large corporations typically negotiate settlement agreements in class-action lawsuits rather than risk having to write a check for the maximum possible penalty. It's a simple cost-benefit calculation and guilt or innocence isn't part of the equation. Where the maximum penalty is $850 million, $450 million, a bit more than 50%, is a perfectly reasonable settlement. Apple is meeting DOJ halfway. That's righteous...assuming the judge doesn't hate you.

See, here's the interesting bit -- Judge Denise Cote has shown unremitting hostility towards Apple since before the anti-trust trial began and that accusation is a big part of the basis for the appeal of her guilty verdict. Which is why I find it notable that there's a clause that kicks in if the Appeals Court overturns her verdict and orders a t:

"...if the ruling is not affirmed and liability must be retried, the settlement provides a smaller recovery of $50 million."

Now, I'm not a lawyer (IANAL) so I don't know how common such provisions are in settlement agreements; but to my untrained eye, that bit of legal language looks like it's designed to twist Judge Cote's arm "Take the deal and we'll agree to $450 million. Reject the deal and it drops to $50 million." Why do I think that?

If Judge Cote is unfairly biased against Apple, that clause presents her with a choice she must find abhorrent:

1. Accept the settlement and Apple pays half the maximum penalty she probably wants to inflict if the Appeals Court sustains her verdict; or

2. Reject the perfectly rational settlement offer, thereby giving Apple more evidence of personal bias and strengthening their appeal while also positioning Apple to settle the whole morass for $50 million if the appeal succeeds. Apple has something north of $150 billion cash on its balance sheet at last report, so $50 million is .0003% of Apple's checking account. It's a rounding error (though $450 million is only a slightly larger rounding error and the full $850 million penalty Judge Cote would probably like impose would only be ~0.6% of Apple's cash on hand).

If #2 happens and the Appeals Court overturns her original verdict, the only way to slap Apple with any non-chump-change penalty would be for DOJ retry the case -- not a pleasant prospect. It would take years, Apple would come armed with an Appeals Court ruling that neutralizes at least some of their previous arguments, and Judge Cote can't force them to do it. So she either accepts the smaller settlement or Apple pays virtually no penalty at all no matter what happens unless the DOJ wants to start the whole mess all over again.

DOJ must be confident that Apple's appeal will fail; otherwise I can't imagine how/why DOJ's lawyers agreed to that clause. I don't know what Judge Cote thinks Apple's chances are on appeal, but if she's at all worried it will succeed, I can't imagine she's very happy with the DOJ right now.

Who didn't see this coming?

Judge Denise Cote and the US Department of Justice, apparently.

"Hachette is not the only imprint to find itself under Amazon's thumb as the online retailing giant has begun turning the heat up on smaller publishers in the U.K., demanding terms that one publishing executive likened to a 'form of assisted suicide for the industry.' 

Perhaps emboldened by its victory by proxy over rival Apple in the U.S., Amazon has been 'bullying' U.K. publishers to accept its terms, a representative from one shop told the British broadcaster."

You don't say. This won't stop until the judiciary overturns Judge Cote's decision, or the publishing industry is turned into a wasteland.

Apple, DoJ Reach e-Book Antitrust Settlement Agreement

"In a court filing on Monday, an attorney representing the plaintiffs in a class action suit seeking damages from Apple's e-book price fixing scheme informed federal Judge Denise Cote that the company has agreed to settle."

This was going to be a separate proceeding from the ongoing anti-trust trial — with Judge Cote having declared Apple guilty of anti-trust violations, she was going to determine whether Apple should pay almost $1 billion in punitive damages. Having settled, Apple will avoid the maximum penalty in the event that its appeal of the original verdict fails. We don't know yet how much the company would pay out in that event, but you can bet it will be a lot less than $840 million.

This isn't an admission of guilt. I don't think there was any question Apple would settle the class action suit. Companies settle such cases more often than not if they think there's any chance they'll have to pay the judgment—and, seriously, did anyone think Apple had a prayer of Judge Cote not hitting them with an almost-$1 billion dollar judgement?