United States v. Apple, Inc., et al.; Public Comments and Response on Proposed Final Judgment, 44271-44287 [2012-18313]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 77, Number 145 (Friday, July 27, 2012)]
[Notices]
[Pages 44271-44287]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18313]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Apple, Inc., et al.; Public Comments and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the United States' 
Response to Public Comments on the proposed Final Judgment in United 
States v. Apple, Inc., et al., Civil Action No. 12-CV-2826 (DLC), which 
was filed in the United States District Court for the Southern District 
of New York on July 23, 2012, together with copies of the 868 comments 
received by the United States.
    Pursuant to the Court's June 11, 2012 order, comments were 
published electronically and are available to be viewed and downloaded 
at the Antitrust Division's Web site, at: https://www.justice.gov/atr/cases/apple/. A copy of the United States' Response to 
Comments is also available at the same location.
    Copies of the comments and the response are available for 
inspection at the Department of Justice Antitrust Division, 450 Fifth 
Street NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-2481), 
and at the Office of the Clerk of the United States District Court for 
the Southern District of New York, Daniel Patrick Moynihan United 
States Courthouse, 500 Pearl Street, New York, NY 10007-1312. Copies of 
any of these materials may also be obtained upon request and payment of 
a copying fee.

Patricia A. Brink,
Director of Civil Enforcement.

United States District Court for the Southern District of New York

    United States of America, Plaintiff, v. Apple, Inc., Civil Action 
No. 12-CV-2826 (DLC) Hachette Book Group, Inc., Harpercollins 
Publishers, L.L.C., Verlagsgruppe Georg Von Holtzbrinck GMBH, 
Holtzbrinck Publishers, LLC d/b/a Macmillan, The Penguin Group, a 
Division of Pearson Plc, Penguin Group (USA), Inc., and Simon & 
Schuster, Inc., Defendants.

Response of Plaintiff United States to Public Comments on the Proposed 
Final Judgment\*\
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    \*\ Public Comments are available at https://www.justice.gov/atr/cases/apple/.
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    July 23, 2012.

Table of Contents

                            Table of Contents
Preliminary Statement...................................               7
I. Introduction.........................................               9
II. The Complaint and the E-Book Industry...............              13
III. Standard of Judicial Review........................              16
    A. The United States Is Entitled to Substantial                   16
     Deference in Crafting a Settlement.................
    B. The Court's ``Public Interest'' Inquiry Should                 18
     Focus on the Relationship Between the Harm Alleged
     and the Remedy Selected............................
IV. The Proposed Final Judgment.........................              20
    A. Ending Collusion by Settling Defendants..........              20
    B. Restoring Competition for E-Books With Respect to              21
     Settling Defendants................................
    C. Compliance and Enforcement.......................              24
V. Summary of Public Comments and the United States'                  25
 Response...............................................
    A. Prominent Themes in Industry Comments............              27
        1. A Window for Retail Discounting Eliminates                 27
         Terms That Facilitated Collusion Without
         Imposing a Business Model on the Industry......
        2. Consumers, the Victims of the Conspiracy,                  28
         Will Benefit as Limits on Retail Discounting
         are Lifted.....................................
        3. Collusion Is Not Acceptable, Even in Response              31
         to Perceived Anticompetitive Conduct...........
        4. Protection From Aggressive Competition Does                36
         Not Justify Keeping Collusive Agreements Intact
        5. The Proposed Final Judgment Is Neither Too                 37
         Regulatory Nor Too Ambiguous for Enforcement...
    B. Individual Responses to Detailed Comments........              39
        1. Barnes & Noble, Inc..........................              40
        2. Consumer Federation of America...............              47
        3. Independent Book Publishers..................              50
        4. American Booksellers Association and Members.              52
        5. Authors Guild and Members....................              53
    C. Additional Responses to Comments With Unique                   58
     Perspectives.......................................
        1. Brian DeFiore, Literary Agent................              58
        2. Bob Kohn, CEO of Royalty Share...............              59
        3. Steerads, Inc................................              61
        4. National Association of College Stores.......              62
        5. American Specialty Toy Retailing Association.              63
    D. Apple, Inc.......................................              63
        1. The Proposed Final Judgment Reasonably                     64
         Requires the Termination of the Apple Agency
         Agreements.....................................
        2. The Proposed Final Judgment Does Not ``Impose              66
         a Business Model''.............................
        3. The Proposed Final Judgment Will Help To                   67
         Restore Competition, Not End It................
        4. Apple Misstates the Standard of Review Under               69
         the Tunney Act.................................
        5. Apple's Suggested Changes to the Proposed                  70
         Final Judgment Are Self-Serving and Contrary to
         the Public Interest............................
VI. Conclusion..........................................              71
 


                          Table of Authorities
 
Cases:

[[Page 44272]]

 
    Am. Med. Ass'n v. United States, 130 F.2d 233 (D.C.               23
     Cir. 1942).........................................
    Atlantic Richfield Co. v. USA Petroleum Co., 495                  22
     U.S. 328 (1990)....................................
    Brooke Group v. Brown and Williamson Tobacco Corp.,               22
     509 U.S. 209 (1993)................................
    Brown Shoe Co. v. United States, 370 U.S. 294 (1962)          vi, 51
    Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.              51
     477 (1977).........................................
    Copperweld Corp. v. Independence Tube Corp., 467                  51
     U.S. 752 (1984)....................................
    Fashion Originators' Guild of Am. v. FTC, 312 U.S.                23
     457 (1941).........................................
    Ford Motor Co. v. United States, 405 U.S. 562 (1972)              12
    FTC v. Ind. Fed'n of Dentists, 476 U.S. 447 (1986)..              23
    FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S.               23
     411 (1990).........................................
    Nat'l Soc'y of Prof'l Eng'rs v. United States, 435        12, 37, 40
     U.S. 679 (1978)....................................
    Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447              19, 52
     (1993).............................................
    Swift & Co. v. United States, 276 U.S. 311 (1928)...              46
    United States v. Alcan Aluminum Ltd., 605 F. Supp.                 7
     619 (W.D. Ky. 1985)................................
    United States v. Alcoa, Inc., 152 F. Supp. 2d 37                   9
     (D.D.C. 2001)......................................
    United States v. Alex. Brown & Sons, Inc., 963 F.       7, 9, 10, 26
     Supp. 235 (S.D.N.Y. 1997)..........................
    United States v. Am. Tel. & Tel. Co., 552 F. Supp.                 7
     131 (D.D.C. 1982)..................................
    United States v. Archer-Daniels-Midland Co., 272 F.                9
     Supp. 2d 1 (D.D.C. 2003)...........................
    United States v. Armour and Co., 402 U.S. 673 (1971)              46
    United States v. Bechtel, 648 F.2d 660 (9th Cir.                9-10
     1981)..............................................
    United States v. Bleznak, 153 F.3d 16 (2d Cir. 1998)               7
    United States v. BNS, Inc., 858 F.2d 456 (9th Cir.             9, 10
     1988)..............................................
    United States v. Comcast, 808 F. Supp. 2d 145                     14
     (D.D.C. 2011)......................................
    United States v. Delta Dental of R.I., No. 96-113P,               11
     1997 WL 527669 (D.R.I. July 2, 1997)...............
    United States v. Gillette Co., 406 F. Supp. 713 (D.            7, 10
     Mass. 1975)........................................
    United States v. Glaxo Group, Ltd., 410 U.S. 52                   12
     (1973).............................................
    United States v. Graftech Int'l Ltd., No. 1:10-cv-        14, 26, 49
     02039, 2011 WL 1566781 (D.D.C. Mar. 24, 2011)......
    United States v. Int'l Bus. Mach. Corp., 163 F.3d       8, 19, 51-52
     737 (2d Cir. 1998).................................
    United States v. Int'l Salt, 332 U.S. 392 (1947)....          11, 12
    United States v. KeySpan Corp., 763 F. Supp. 2d 633         7, 8, 45
     (S.D.N.Y. 2011)....................................
    United States v. Loew's, Inc., 371 U.S. 38 (1962)...              17
    United States v. Microsoft Corp., 56 F.3d 1448 (D.C.           (\1\)
     Cir. 1995).........................................
    United States v. Nat'l Lead Co., 332 U.S. 319 (1947)          11, 49
    United States v. Paramount Pictures, 334 U.S. 131      10, 14, 48-49
     (1948).............................................
    United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d           (\1\)
     1 (D.D.C. 2007)....................................
    United States v. Socony-Vacuum Oil, 310 U.S. 150               22-23
     (1940).............................................
    United States v. U. S. Gypsum Co., 340 U.S. 76        12, 17, 26, 53
     (1950).............................................
    United States v. Visa, 163 F. Supp. 2d 322 (S.D.N.Y.              25
     2001)..............................................
    Wallace v. Int'l Bus. Machine Corp., 467 F.3d 1104                21
     (7th Cir. 2006)....................................
    Zenith Radio Corp. v. Hazeltine Research, Inc., 395           12, 37
     U.S. 100 (1969)....................................
 
                                Statutes
 
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(a).              46
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-               1
 (h)....................................................
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(d).               1
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(e).           (\1\)
Antitrust Procedures and Penalties Act, 15 U.S.C. 16(f).              31
Sherman Act, 15 U.S.C. 1................................               1
 
\1\ Passim.

Preliminary Statement

    When Apple launched its iBookstore in April of 2010, virtually 
overnight the retail prices of many bestselling and newly released 
e-books published in this country jumped 30 to 50 percent--affecting 
millions of consumers. The United States conducted a lengthy 
investigation into this steep price increase and uncovered 
significant evidence that the seismic shift in e-book prices was not 
the result of market forces, but rather came about through the 
collusive efforts of Apple and five of the six largest publishers in 
the country. That conduct, which is detailed in the United States' 
Complaint against those entities, is per se illegal under the 
federal antitrust laws.
    Three of the publishers named in the Complaint as defendants--
Hachette Book Group, Inc., HarperCollins Publishers L.L.C., and 
Simon & Schuster, Inc.--have entered into settlement agreements with 
the United States. As it is required to do under the Tunney Act, the 
United States solicited comments from the public regarding the 
settlements. The United States received 868 comments from 
individuals, publishers, booksellers, and even from Apple, a key 
conspirator in the underlying price-fixing scheme.
    Comments were submitted both in support of, and in opposition 
to, the proposed settlements. Those in support largely commented 
favorably on the government's efforts to end the conspiracy that 
cost e-book purchasers millions of dollars, and restore competition 
to the e-book market. Critical comments generally were submitted by 
those who have an interest in seeing consumers pay more for e-books, 
and hobbling retailers that might want to sell e-books at lower 
prices. Many such comments expressed a general frustration with 
conditions that arise not from the settlements or even the United 
States' Complaint, but from the evolving nature of the publishing 
industry--in which the growing popularity of e-books is placing 
pressure on the prevailing model that is built on physical supply 
chains and brick-and-mortar stores. Many critics of the settlements 
view the consequences of the conspiracy--higher prices--as serving 
their own self-interests, and they prefer that unfettered 
competition be replaced by industry collusion that places the 
welfare of certain firms over that of the public. That position is 
wholly at odds with the purposes of the federal antitrust laws--
which were enacted to protect competition, not competitors. See, 
e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962).
    The United States received many comments that sought to excuse 
price fixing as necessary to end Amazon's reported ninety percent 
share of the e-book market, and noted that Apple's entry effectuated 
erosion of Amazon's share and spurred all sorts of innovations, such 
as color e-books. But the reality is that, despite its 
conspiratorial efforts, Apple's entry into the e-book market was not 
immediately successful. It was, in fact, Barnes & Noble's

[[Page 44273]]

entry--prior to Apple--that took significant share away from Amazon; 
and many of the touted innovations were in development long before 
Apple decided to enter the market via conspiracy.
    Some critical comments simply misunderstand the decree. They 
assert that the United States is imposing a business model on the 
industry by prohibiting agency agreements. The United States, 
however, does not object to the agency method of distribution in the 
e-book industry, only to the collusive use of agency to eliminate 
competition and thrust higher prices onto consumers. Publishers that 
did not collude are not required to surrender agency agreements and 
even the settling publishers here can resume agency, if they act 
unilaterally, after only two years. This brief cooling-off period 
will ensure that the effects of the collusion will have evaporated 
before defendants seek future agency agreements, if any.
    Overall, the United States is entitled to broad discretion to 
settle with antitrust defendants, so long as the settlements are 
within the reaches of the public interest. In that regard, the 
Court's inquiry is a limited one, focused on whether the proposed 
Final Judgment provides effective and appropriate remedies for the 
antitrust violations alleged in the Complaint, with respect to the 
Settling Defendants. As set forth below, after carefully considering 
the comments received, the United States has concluded the 
settlements meet that test.

Introduction

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``Tunney Act''), the United 
States hereby responds to the public comments received in this case 
regarding the proposed Final Judgment as to defendants Hachette Book 
Group, Inc., HarperCollins Publishers L.L.C., and Simon & Schuster, 
Inc. (collectively ``Settling Defendants''). After careful 
consideration of the comments, the United States has concluded that 
the proposed Final Judgment will provide an effective and 
appropriate remedy for the antitrust violations alleged in the 
Complaint, with respect to the Settling Defendants. The United 
States will move the Court for entry of the proposed Final Judgment 
after this response has been published in the Federal Register and 
online. All timely comments are posted publicly at https://www.justice.gov/atr/cases/apple/, pursuant to 15 U.S.C. 
16(d).
    On April 11, 2012, the government filed a civil antitrust 
Complaint alleging that Apple, Inc. (``Apple'') and five of the six 
largest publishers in the United States (``Publisher Defendants'') 
restrained competition in the sale of electronic books (``e-
books''), in violation of Section 1 of the Sherman Act, 15 U.S.C. 1. 
On the same day, the United States filed a proposed Final Judgment 
with respect to the three Settling Defendants.
    The United States and Settling Defendants have stipulated that 
the proposed Final Judgment may be entered after compliance with the 
requirements of the Tunney Act. Pursuant to those requirements, the 
United States filed its Competitive Impact Statement (``CIS'') with 
the Court on April 11, 2012; the proposed Final Judgment and CIS 
were published in the Federal Register on April 24, 2012, at 77 FR 
24518; and summaries of the terms of the proposed Final Judgment and 
CIS, together with directions for the submission of written comments 
relating to the proposed Final Judgment, were published in both The 
New York Post and The Washington Post for seven days beginning on 
April 20, 2012 and ending on April 26, 2012. The sixty-day period 
for public comment (``Tunney Act period'') ended on June 25, 2012.
    The United States received 868 comments during the Tunney Act 
period.\1\ Nearly seventy of those comments favored the suit and 
settlement. The favorable comments included a submission from the 
Consumer Federation of America (``CFA''), the only consumer group to 
submit a comment on the decree. Another supportive comment included 
the signatures of 186 authors who favorably noted the growth of the 
e-book industry and the opportunities it gave them to bypass 
traditional distribution channels and successfully self-publish e-
books at lower prices. Among the group of comments that supported 
the settlement were fifty-two readers and consumers, several of whom 
echoed the themes of a form letter suggested by online publisher 
Wordpress.com.\2\ The comments supporting the proposed Final 
Judgment did, however, include several that asserted the relief 
obtained in the settlements did not go far enough. One observation 
raised in these comments was that two years is too short a period to 
ban Settling Defendants from prohibiting price discounting by 
retailers.
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    \1\ An additional fourteen comments arrived after the Tunney Act 
period expired and, therefore, have not been published. However, the 
United States reviewed the comments and none of them raised any 
issue not already addressed in this Response to Comments.
    \2\ As of this writing, that letter is available at: https://support4settlement.wordpress.com/2012/04/30/support-the-settlement/.
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    The remaining comments opposed the suit and/or the 
settlement.\3\ Most of these comments came from publishers, authors, 
agents, and bookstores that acknowledged an interest in higher 
retail e-book prices. An overarching theme of their comments was 
that lower e-book prices would harm booksellers directly and others 
indirectly. They claimed that the pre-conspiracy lower e-book prices 
were caused by predatory conduct of Amazon and that the proposed 
Final Judgment would allow Amazon to lower prices once again, which 
could lead to an Amazon monopoly. These comments suggested that the 
current industry equilibrium, even if collusively attained, is 
preferable to the competitive dynamic that preceded it, and that the 
United States erred both in suing the conspirators and in agreeing 
to a settlement designed to restore competition. Comments among this 
group include those from the American Booksellers Association 
(``ABA''), The Authors Guild,\4\ a group of nine mid-tier publishers 
(``Independent Book Publishers''), and Amazon's two largest e-book 
retail competitors, Barnes & Noble (``B&N'') and Apple.
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    \3\ Two comments expressed no opinion either in favor of the 
suit or settlement, or in opposition to it.
    \4\ Both the Authors Guild and the ABA posted talking points 
online and instructed members ``How to Weigh In'' on the proposed 
Final Judgment. As of this writing, that guidance is available at: 
https://authorsguild.org/advocacy/articles/the-justice-departments-e-book-proposal-needlessly.html, and https://news.bookweb.org/news/aba-members-urged-make-their-voices-heard-re-agency-model.
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    This response proceeds as follows: Section II describes the 
Complaint and the industry facts that the United States considered 
when it entered into the settlements. Section III outlines the legal 
considerations for the Court as it reviews the proposed Final 
Judgment. Section IV explains the provisions of the proposed Final 
Judgment and how they will aid in restoring competition. Finally, 
Section V addresses the most prominent concerns raised in comments, 
then responds directly to the key assertions of the most detailed 
comments submitted.

I. The Complaint and the E-Book Industry

    On April 3, 2010, simultaneously with Apple's iPad launch, the 
retail prices of most bestselling and newly released e-books 
published by Publisher Defendants jumped from the then-prevailing 
price of $9.99 to $12.99 or $14.99. Compl. ]] 7-8, 74. In May 2010, 
the United States formally opened an investigation into the 
possibility that the price hike was the result of collusion. During 
the investigation, the United States issued Civil Investigative 
Demands to obtain documents and sworn testimony from defendants and 
third parties. On the strength of the evidence gathered during its 
investigation, the United States filed its Complaint on April 11, 
2012.
    The Complaint alleges that defendants conspired and agreed to 
raise, fix, and stabilize retail e-book prices, to end price 
competition among e-book retailers, and to limit retail price 
competition among Publisher Defendants. Defendants ultimately 
effectuated this agreement by collectively adopting and adhering to 
functionally identical price schedules and methods of selling e-
books, as laid out in each Publisher Defendant's contract with Apple 
(the ``Apple Agency Agreements''). In 2008, defendants began to 
communicate about the threat posed by Amazon's $9.99 pricing 
strategy, and the need to work together to end it. Compl. ] 37. 
Though Amazon's e-book distribution business was ``[f]rom the time 
of its launch * * * consistently profitable,'' it ``substantially 
discount[ed] some newly released and bestselling titles.'' Compl. ] 
30. By the end of the summer of 2009, Publisher Defendants agreed to 
work collectively to raise Amazon's retail prices. Compl. ] 37.
    Apple was aware of Publisher Defendants' common objective to end 
Amazon's $9.99 pricing. Compl. ] 59. In late 2009, Apple and 
Publisher Defendants agreed to replace the wholesale model for e-
book sales with an agency model that would allow Publisher 
Defendants to raise prices. Compl. ] 37. Apple first proposed that 
each publisher expressly adopt an agency pricing model for all of 
its retail e-book sales, Compl. ] 63, then replaced that express 
requirement with an

[[Page 44274]]

unusual most favored nation (``MFN'') pricing provision that 
accomplished the same result. Compl. ]] 65-66. This MFN was designed 
to protect Apple from having to compete on price at all, while still 
maintaining its margin. Compl. ] 65. Apple facilitated this 
transition to agency pricing across all e-book retailers by entering 
into functionally identical agency contracts with each Publisher 
Defendant that allowed Publisher Defendants to set Apple's retail 
prices for e-books. Compl. ] 6-7. The same terms granted Apple the 
assurance that Publisher Defendants would raise retail e-book prices 
at all other e-book retailers, and contained price tiers that 
created de facto retail e-book prices as a function of a title's 
hardcover list price. Compl. ] 7.
    As explained more fully in the Complaint and CIS, defendants' 
conspiracy resulted in higher consumer prices for e-books than would 
have been possible absent collusion. ``[T]he average price for 
Publisher Defendants' e-books increased by over ten percent between 
the summer of 2009 and the summer of 2010.'' CIS at 8-9. ``On many 
adult trade e-books, consumers have witnessed an increase in retail 
prices between 30 and 50 percent.'' CIS at 9. Additionally, 
defendants' agreement prevented e-book retailers ``from introducing 
innovative sales models or promotions with respect to Publisher 
Defendants' e-books, such as offering e-books under an `all-you-can-
read' subscription model where consumers would pay a flat monthly 
fee.'' CIS at 9.
    Since the proposed Final Judgment was announced, more companies 
are investing to enter or expand in the market and compete against 
Amazon, Apple, and other e-book retailers. According to public 
reports, Microsoft has invested hundreds of millions of dollars in 
Barnes & Noble's digital book business, a business that Microsoft 
valued at $1.7 billion.\5\ Microsoft soon thereafter announced it 
would sell a tablet computer, named Surface, that will compete 
against the iPad and serve as an e-reader.\6\ Google, already an e-
book content provider, also announced after the settlement that it 
would for the first time sell a tablet, called Nexus 7. The Nexus 7 
is designed to compete directly against Amazon's Kindle Fire and 
bring more business to Google Play, Google's online store that sells 
e-books and other digital content.\7\
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    \5\ See Shira Ovide & Jeffrey A. Trachtenberg, Microsoft Hooks 
Onto Nook, Wall Street Journal, May 2, 2012; Press Release, Barnes & 
Noble, Barnes & Noble and Microsoft Form Strategic Partnership to 
Advance World-Class Digital Reading Experiences for Consumers, 
(April 30, 2012), https://www.barnesandnobleinc.com/press_releases/4_30_12_bn_microsoft_strategic_partnership.html (quoting B&N's 
CEO as saying that the Microsoft partnership is an important part of 
the strategy ``to solidify our position as a leader in the exploding 
market for digital content in the consumer and education 
segments'').
    \6\ See Madalit Del Barco, Microsoft's Surface Tablet to Compete 
with iPad, National Public Radio (June 19, 2012), https://www.npr.org/2012/06/19/155337886/microsoft-debuts-surface-tablet-to-compete-with-ipad; Michael Kozlowski, How Will the Microsoft Surface 
Tablet Function as an e-Reader, Good E-Reader (June 20, 2012),  
https://goodereader.com/blog/electronic-readers/how-will-the-microsoft-surface-tablet-function-as-an-e-reader.
    \7\ See Joanna Stem, Google Nexus 7 Tablet Move Over, Kindle 
Fire, ABC News.com (Jun. 27, 2012), https://abcnews.go.com/blogs/technology/2012/06/google-nexus-7-tablet-move-over-kindle-fire/; 
Michael Liedtke, Google, Kindle have tablet showdown, Charlotte 
Observer.com (June 28, 2012), https://www.charlotteobserver.com/2012/06/28/3346735/googles-nexus-seven-tablet-challenges.html.
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III. Standard of Judicial Review

    Under the Tunney Act, proposed consent judgments in antitrust 
cases brought by the United States are subject to a sixty-day 
comment period, after which the court shall determine whether entry 
of the proposed final judgment ``is in the public interest.'' 15 
U.S.C. 16(e)(1). As discussed in more detail below, the public 
interest inquiry considers the relationship between the allegations 
in the government's complaint and the proposed remedy, with 
deference to the United States' role in crafting a settlement.

A. The United States Is Entitled to Substantial Deference in 
Crafting a Settlement

    When parties come before the court in a Tunney Act proceeding, 
they have resolved their dispute with respect to a government 
antitrust complaint. Accordingly, the court's inquiry is necessarily 
a limited one as the government is entitled to ``broad discretion to 
settle with the defendant within the reaches of the public 
interest.'' United States v. Microsoft Corp., 56 F.3d 1448, 1461 (DC 
Cir. 1995); accord United States v. Alex. Brown & Sons, Inc., 963 F. 
Supp. 235, 238 (S.D.N.Y. 1997) (quoting Microsoft, 56 F.3d at 1460), 
aff'd sub nom., United States v. Bleznak, 153 F.3d 16 (2d Cir. 
1998); United States v. KeySpan Corp., 763 F. Supp. 2d 633, 637 
(S.D.N.Y. 2011) (same); United States v. SBC Commc'ns, Inc., 489 F. 
Supp. 2d 1, 15-16 (D.D.C. 2007) (assessing public interest standard 
under the Tunney Act).
    The question in a Tunney Act proceeding is not whether the 
reviewing court would have imposed a different decree if liability 
had been established in litigation. Rather, ``a proposed decree must 
be approved even if it falls short of the remedy the court would 
impose on its own, as long as it falls within the range of 
acceptability or is `within the reaches of public interest.''' 
United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 
1982) (citations omitted) (quoting United States v. Gillette Co., 
406 F. Supp. 713, 716 (D. Mass. 1975)); see also United States v. 
Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) 
(approving the consent decree even though the court would have 
imposed a greater remedy).
    To meet this standard, the United States ``need only provide a 
factual basis for concluding that the settlements are reasonably 
adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F. 
Supp. 2d at 17; accord KeySpan Corp., 763 F. Supp. 2d at 637-38. The 
United States ``need not prove its underlying allegations in a 
Tunney Act proceeding,'' as such a requirement ``would fatally 
undermine the practice of settling cases and would violate the 
intent of the Tunney Act.'' SBC Commc'ns, 489 F. Supp. 2d at 20 
(citing 15 U.S.C. 16(e)(2) for the proposition that the Act does not 
require a court to hold an evidentiary hearing). Congress intended 
that the court reach its determination expeditiously, giving due 
deference to the government's predictions regarding the effect of 
its proposed remedies. See Microsoft, 56 F.3d at 1461.

B. The Court's ``Public Interest'' Inquiry Should Focus on the 
Relationship Between the Harm Alleged and the Remedy Selected

    The Tunney Act requires the court to consider specific factors 
in determining whether the proposed Final Judgment is in the 
``public interest.'' 15 U.S.C. 16(e)(1); see also United States v. 
Int'l Bus. Mach. Corp., 163 F.3d 737, 740 (2d Cir. 1998). Courts 
``cannot look beyond the complaint in making the public interest 
determination unless the complaint is drafted so narrowly as to make 
a mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15. 
Under the statute, the court should consider the following factors:

    (A) The competitive impact of such judgment, including 
termination of alleged violations, provisions for enforcement and 
modification, duration of relief sought, anticipated effects of 
alternative remedies actually considered, whether its terms are 
ambiguous, and any other competitive considerations bearing upon the 
adequacy of such judgment that the court deems necessary to a 
determination of whether the consent judgment is in the public 
interest; and
    (B) The impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and 
individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if 
any, to be derived from a determination of the issues at trial.

15 U.S.C. 16(e)(1)(A)-(B).
    In other words, under the Tunney Act, a court considers, among 
other things, the relationship between the remedy secured and the 
specific allegations set forth in the government's complaint, whether 
the decree is sufficiently clear, whether enforcement mechanisms are 
sufficient, and whether the decree may positively harm third parties. 
See Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the 
relief secured by the decree, a court may not ``engage in an 
unrestricted evaluation of what relief would best serve the public.'' 
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (quoting 
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see 
also Microsoft, 56 F.3d at 1460-62; Alex. Brown & Sons, 963 F. Supp. at 
238; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 
2001). Instead, the court should grant due respect to the United 
States' ``prediction as to the effect of proposed remedies, its

[[Page 44275]]

perception of the market structure, and its views of the nature of the 
case.'' United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 
6 (D.D.C. 2003).

    The balancing of competing social and political interests 
affected by a proposed antitrust consent decree must be left, in the 
first instance, to the discretion of the Attorney General. The 
court's role in protecting the public interest is one of insuring 
that the government has not breached its duty to the public in 
consenting to the decree. The court is required to determine not 
whether a particular decree is the one that will best serve society, 
but whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted); accord 
Alex. Brown, 963 F. Supp. at 238.\8\
---------------------------------------------------------------------------

    \8\ Cf. BNS, 858 F.2d at 464 (holding that the court's 
``ultimate authority under the [Tunney Act] is limited to approving 
or disapproving the consent decree''); Gillette, 406 F. Supp. at 716 
(the court is constrained to ``look at the overall picture not 
hypercritically, nor with a microscope, but with an artist's 
reducing glass''). See generally Microsoft, 56 F.3d at 1461 
(discussing whether ``the remedies [obtained in the decree are] so 
inconsonant with the allegations charged as to fall outside of the 
`reaches of the public interest''').
---------------------------------------------------------------------------

IV. The Proposed Final Judgment

    The purpose of the proposed Final Judgment is to stop collusive 
conduct by Settling Defendants and mitigate the consequences of their 
collusion in the sale of e-books. Accordingly, the terms of the 
proposed Final Judgment are designed to accomplish three things: (1)E 
the current collusion; (2) restore competition eliminated by that 
collusion; and (3) ensure compliance.

A. Ending Collusion by Settling Defendants

    The function of a decree in a Sherman Act case ``includes undoing 
what the conspiracy achieved.'' United States v. Paramount Pictures, 
334 U.S. 131, 171 (1948). Here, defendants achieved higher retail e-
book prices in large part by collectively agreeing to wrest control of 
pricing and other terms from retailers. As explained more fully in the 
Complaint and CIS, the anticompetitive results of the conspiracy 
ultimately were ensured by Publisher Defendants' near-simultaneous 
execution of the Apple Agency Agreements, which included common price 
schedules and MFN clauses, and which proscribed retail discounting. 
Accordingly, the proposed Final Judgment requires that Settling 
Defendants terminate the Apple Agency Agreements. PFJ Sec.  IV.A. 
Courts have long required termination of contracts found to be unlawful 
under Section 1 of the Sherman Act. See United States v. Nat'l Lead 
Co., 332 U.S. 319, 328 n.4, 363-64 (1947) (approving a decree 
cancelling unlawful agreements and enjoining further performance); see 
also United States v. Delta Dental of R.I., No. 96-113P, 1997 WL 527669 
(D.R.I. July 2, 1997) (entering decree voiding MFN enforcement).
    The proposed Final Judgment also requires that Settling Defendants 
terminate, as soon as they are contractually permitted to do so, all 
other agreements that include restrictions on the ability of e-book 
retailers to compete on price or that may be used to facilitate price 
fixing. This allows retailers the opportunity to renegotiate those 
contracts with Settling Defendants unimpeded by collusion. The proposed 
Final Judgment does not require Settling Defendants to breach any such 
contracts; rather, it requires Settling Defendants not to extend them, 
and to take any such steps necessary to terminate the contracts 
according to their own terms. PFJ Sec.  IV.B.

B. Restoring Competition for E-Books With Respect to Settling 
Defendants

    To allow the competition foreclosed by defendants' collusion to 
reemerge, the proposed Final Judgment requires that Settling 
Defendants: (a) Refrain for two years from entering into contracts 
containing retail price restrictions and price commitment mechanisms; 
(b) stop communicating competitively sensitive information to 
competitors; (c) not retaliate against retailers that exercise 
discounting authority; and (d) agree not to fix terms or prices with 
competitors for the provision of e-books. PFJ Sec. Sec.  V.B, V.C, V.D, 
V.E, and V.F.
    It is well established that the remedy for a violation of the 
Sherman Act may extend beyond the specific agreements that embodied the 
violation. Once a violation has occurred, ``advantages already in hand 
may be held by methods more subtle and informed, and more difficult to 
prove, than those which, in the first place, win a market.'' United 
States v. Int'l Salt, 332 U.S. 392, 400 (1947) (abrogated on other 
grounds). Consequently, while the scope of the remedy must be clearly 
related to the anticompetitive effects of the illegal conduct, 
Microsoft, 56 F.3d at 1460, courts are ``empowered to fashion 
appropriate restraints on [the transgressor's] future activities both 
to avoid a recurrence of the violation and to eliminate its 
consequences.'' Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 
679, 697 (1978). Relief may ``range broadly through practices connected 
with acts actually found to be illegal.'' United States v. U. S. Gypsum 
Co., 340 U.S. 76, 89 (1950). A court ``has broad power to restrain acts 
which are of the same type or class as [the] unlawful acts'' and which 
``may fairly be anticipated'' from the defendant's past conduct. Zenith 
Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 132 (1969) 
(internal quotation marks and citation omitted). The relief should 
``unfetter a market from anticompetitive conduct,'' and include that 
which is ``necessary and appropriate'' in order ``to restore 
competition.'' Ford Motor Co. v. United States, 405 U.S. 562, 573, 577 
& n.8 (1972) (internal quotation marks and citations omitted).
    In this case, a prohibition on price fixing or the termination of 
the Apple Agency Agreements standing alone would be insufficient to 
undo the effects of the conspiracy. By colluding, defendants learned 
that they shared a common goal to raise e-book prices, agreed to use 
particular tools to achieve that goal, found those tools to be 
effective, and found each other reliable in the application of those 
tools. It is appropriate, therefore, to restrict defendants' ability to 
use the tools that effectuated the conspiracy. See, e.g., United States 
v. Glaxo Group, Ltd., 410 U.S. 52, 64 (1973) (barring the use of a 
patent employed to effect a conspiracy); Int'l Salt, 332 U.S. at 400 
(``it is not necessary that all of the untraveled roads'' to collusion 
``be left open and that only the worn one be closed''). Thus, retail 
price restrictions and MFN pricing clauses are prohibited for two- and 
five-year periods, respectively. The United States negotiated these 
limited prohibitions as a means to ensure a cooling-off period and 
allow movement in the marketplace away from collusive conditions. Such 
precautions are particularly important in this case, as three 
defendants have not yet agreed to terminate their collusive behavior. 
These limitations also are designed not to last long enough to alter 
the ultimate development of the competitive landscape in the still-
evolving e-books industry.
    These provisions are tailored to restore a measure of competition 
to the market, while avoiding harm to other market participants (e.g., 
retailers) that may have relied on the collusive agreements in effect 
for more than two years. For example, the proposed Final Judgment 
specifically permits Settling Defendants to pay for e-book promotion or 
marketing efforts made by brick-and-mortar booksellers. PFJ Sec.  VI.A. 
Each Settling Defendant also may negotiate a commitment from any e-book 
retailer to limit its annual discounts, so that each Settling 
Defendants may ensure that its

[[Page 44276]]

entire catalog of e-books is not sold by any retailer below its total 
e-book costs. PFJ Sec.  VI.B. Monitoring and enforcement of this 
provision is left to the discretion of Settling Defendants and the 
retailers with which they contract.

C. Compliance and Enforcement

    To ensure that Settling Defendants abide by the substantive terms 
of the proposed Final Judgment and decrease the likelihood that they 
might attempt to collude in other ways, the proposed Final Judgment 
requires that Settling Defendants: (a) Provide the United States with 
copies of current retail agreements immediately, future contracts 
quarterly, competitor communication logs quarterly, and notification of 
new or changing joint ventures as needed; (b) allow the United States 
to investigate compliance from time to time, as authorized by the 
Assistant Attorney General for Antitrust; and (c) provide officers and 
employees counseling on the requirements of the proposed Final Judgment 
and the antitrust laws so they may understand their obligations. PFJ 
Sec. Sec.  IV.C, IV.D, VII.C, VII.I, VIII.A.
    These mechanisms are commonly used means of ensuring compliance 
with a decree, while minimizing administrative costs. See, e.g., Final 
Judgment at Sec. Sec.  IV.I-O, United States v. Comcast, 808 F. Supp. 
2d 145 (D.D.C. 2011) (No. 1:11-cv-00106) (requiring quarterly provision 
of communication logs and retention of twelve categories of documents); 
Final Judgment at Sec.  IV.C, United States v. Graftech Int'l Ltd., No. 
1:10-cv-02039, 2011 WL 1566781 at *3 (D.D.C. Mar. 24, 2011) (requiring 
quarterly and annual provision of contracts and reports). None of these 
provisions requires the United States Department of Justice 
(``Department'') or the Court to become deeply involved in the daily 
operation of Settling Defendants' businesses. Cf. Paramount Pictures, 
334 U.S. at 162 (rejecting provision of a consent decree because it 
``involves the judiciary so deeply in the daily operation of this 
nation-wide business'').
    In this case, the enforcement provisions focus on the specific 
terms that affected the conspiracy. Current and future agreements must 
be provided to confirm that retail pricing restrictions and price MFNs 
are not included. The requirement that Settling Defendants provide logs 
of communications among publishers will discourage unnecessary and 
anticompetitive communications, such as those that led to their e-books 
conspiracy. Likewise, as Publisher Defendants considered forming joint 
ventures to better coordinate pricing, Compl. ]] 47-49, future joint 
ventures must be reviewed by the United States. In the event concerns 
about compliance arise, the proposed Final Judgment allows the United 
States to investigate. Finally, in order to empower Settling Defendants 
to avoid such concerns, antitrust counseling also is required.

V. Summary of Public Comments and the United States' Response

    Comments opposing the proposed Final Judgment and those supporting 
it have at least one element in common: they agree that entry of the 
decree likely will reduce retail prices for e-books, at least in the 
short term. Detractors insist that lower pricing will mean reduced 
profits for bookstores, authors, literary agents, and publishers, and 
an eventual reduction in quality, service, variety, and other benefits 
to consumers. Supporters welcome a reduction in e-book prices for 
consumers, and dismiss any lost benefits to industry participants as 
undeserved, speculative, or irrelevant.
    The comments submitted in opposition to entry of the proposed Final 
Judgment explored five common themes: (1) The legality of restoring 
discount authority to retailers; (2) the economic impact on industry 
participants of restoring discount authority to retailers; (3) the 
viability of collusive pricing as a defense against perceived 
monopolization and/or predatory pricing; (4) collusive pricing as 
protection from free riding and low-cost competition; and (5) the 
clarity and breadth of the proposed Final Judgment.\9\ Section A 
responds to these themes in detail. Section B highlights portions of 
the most detailed comments for individual responses, including comments 
submitted by B&N, the CFA, the Independent Book Publishers, the ABA, 
and the Authors Guild. Section C addresses additional comments that 
presented distinct ideas.\10\ Finally, Section D discusses the comment 
submitted by Apple, which is the only comment submitted by a defendant 
in this matter. The United States carefully reviewed all of the 
submitted comments and, after serious consideration, concludes that the 
proposed Final Judgment is in the public interest and requires no 
modification.
---------------------------------------------------------------------------

    \9\ Many of the 868 comments received from the public did not 
bear on issues related to the antitrust merits of the proposed Final 
Judgment or on any other issue arguably related to the Court's 
inquiry under the Tunney Act. While the United States did undertake 
herein to respond generally or specifically to all germane comments, 
we do not address those that are wholly outside the scope of Tunney 
Act proceedings. Following are some examples of the types of issues 
that arose in comments we determined were not relevant for Tunney 
Act review: (1) The Complaint should not have been filed, see, e.g., 
Alicia Wendt (ATC-0314) at 1 (writing ``to urge the US Department of 
Justice to reconsider its complaint and drop the related charges''); 
(2) the United States should sue Amazon, see, e.g., Nancy L. 
Cunningham (ATC-0733) (suggesting ``the Department of Justice should 
turn its attention to Amazon, a company that seeks to create a 
monopoly''); (3) tax reform is needed to require payment by online 
retailers, see, e.g., Roberta Rubin (ATC-0323) (claiming Amazon is 
``evading any tax demands in most of the states in which they sell 
books''); (4) the United States has been improperly influenced by 
Amazon to bring this lawsuit, see, e.g., Richard Howorth (ATC-0790) 
at 1 (suggesting that the DOJ was improperly influenced because a 
former Deputy Attorney General sits on Amazon's board of directors).
    \10\ For ease of access, all of the comments discussed in 
Sections B and C have been collected and separately saved, and are 
available both in Exhibit A in the folder titled ``Detailed 
Comments'' and on the Antitrust Division's Web site, at https://www.justice.gov/atr/cases/apple/, under ``Detailed 
Comments.''
---------------------------------------------------------------------------

A. Prominent Themes in Industry Comments

1. A Window for Retail Discounting Eliminates Terms That Facilitated 
Collusion Without Imposing a Business Model on the Industry
    Many comments, including those submitted by B&N, Books-A-Million 
(``BAM''), the ABA, and the Authors Guild, argue that the proposed 
Final Judgment inappropriately prohibits the use of an agency sales 
model. B&N claims that the ``[g]overnment should not regulate legal 
agreements that are independently negotiated by industry participants 
who are in the best position to determine if the agreements are in 
their interests.'' B&N (ATC-0097) at 24. BAM adds that ``[i]t is now 
well-established * * * that vertical restrictions, even vertical price 
restrictions, are not necessarily anticompetitive.'' BAM (ATC-0261) at 
2.
    As a preliminary matter, the proposed Final Judgment does not 
impose a business model on the e-book industry. Of course, publishers 
that were not parties to the conspiracy face no government challenge 
whatsoever as to agency agreements independently arrived at with e-book 
retailers. Even Settling Defendants, whose agency contracts were the 
product of the conspiracy, are not permanently barred from using the 
agency model. For two years, however, Settling Defendants cannot 
prohibit retailers from discounting e-books. The United States believes 
that this limited restriction is necessary to prevent Settling 
Defendants from continuing to benefit from their conspiracy by 
insisting that retailers enter new contracts that are identical to the 
contracts produced through collusion. See CIS at 10 (``[T]he

[[Page 44277]]

proposed Final Judgment will ensure that the new contracts will not be 
set under the collusive conditions that produced the Apple Agency 
Agreements.'').\11\
---------------------------------------------------------------------------

    \11\ As one comment put it more colloquially, defendants ``maxed 
out on chutzpah,'' and now ``[t]he only remedy for such blatant 
collusion is to wipe the slate clean'' and let the market sort 
pricing out. Courtney Milan (ATC-0262).
---------------------------------------------------------------------------

    Nor are restrictions on agency pricing inappropriate when necessary 
to prevent furtherance of a conspiracy or when agency contracts were 
the heart of a conspiracy. As the CFA observed, when B&N and other 
retailers negotiated agency contracts with publishers, they were ``not 
negotiating with independent publishers'' but ``with members of a 
cartel.'' CFA (ATC-0775) at 9. When ``otherwise permissible practices 
[are] connected with the acts found to be illegal'' then they ``must 
sometimes be enjoined'' to ensure relief. United States v. Loew's, Inc. 
371 U.S. 38, 53 (1962); see also U. S. Gypsum Co., 340 U.S. at 89 
(``Acts entirely proper when viewed alone may be prohibited,'' if 
needed for effective relief). In this case, allowing retail price 
restrictions to continue without interruption would maintain the 
collusive status quo in the e-book industry. The limitations placed on 
the terms of agency contracts entered into by Settling Defendants for a 
period of two years will break the collusive status quo and allow truly 
bilateral negotiations between publishers and retailers to produce 
competitive results.
2. Consumers, the Victims of the Conspiracy, Will Benefit as Limits on 
Retail Discounting Are Lifted
    Many comments maintain that brick-and-mortar booksellers such as 
B&N, BAM, and ABA member stores will be harmed if the proposed Final 
Judgment removes barriers to price competition. They contend that 
higher retail margins produced by the conspiracy ameliorated declines 
in brick-and-mortar revenues, generated ``procompetitive benefits'' 
such as entry by new retail competitors and innovation, and allowed 
brick-and-mortar booksellers to offer new marketing service and support 
for e-books. See, e.g., B&N at 13-14, 20; ABA (ATC-0265) at 2-3. Of 
course, protecting profits attributable to collusion is squarely at 
odds with a fundamental purpose of the antitrust laws: The promotion of 
competition. And, many of the so-called ``procompetitive benefits'' 
that these commenters believe will be lost if the decree is entered are 
illusory or cannot be attributed to the collusion.
    While the Tunney Act directs the court to consider the impact of 
the settlement on third parties, these third parties are limited to 
those ``alleging specific injury from the violations set forth in the 
complaint.'' 15 U.S.C. 16(e)(1)(B). In this case, the third parties 
that the Court is directed to consider under the Tunney Act are the 
consumers of e-books, not the brick-and-mortar booksellers, which admit 
that they benefited from the conspiracy. See, e.g., B&N at 19. The 
booksellers' objection is not that they were harmed as a result of the 
violation, but that the proposed Final Judgment ends the collusively-
attained equilibrium that provided them with an anticompetitive 
windfall. This is not the type of impact that the Tunney Act directs 
the Court to consider. Instead, the Court should consider that 
consumers who were actually injured by the conspiracy will benefit as 
the proposed Final Judgment returns price competition to the market. As 
the Second Circuit observed when terminating a consent decree despite 
competitor objections, ``[t]he purpose of the [Sherman] Act is not to 
protect businesses from the working of the market; it is to protect the 
public from the failure of the market.'' Int'l Bus. Machines Corp., 163 
F.3d at 741-42 (2d Cir. 1998) (quoting Spectrum Sports, Inc. v. 
McQuillan, 506 U.S. 447, 458 (1993)).\12\
---------------------------------------------------------------------------

    \12\ Although the Tunney Act requires a ``public interest'' 
determination only to approve a consent decree, the Second Circuit 
applies the same ``consider[ation of] the public interest'' when 
evaluating a termination. See Int'l Bus. Machines Corp., 163 F.3d 
737, 740 (citations omitted).
---------------------------------------------------------------------------

    In addition, many brick-and-mortar booksellers, as well as the 
Authors Guild, speculate that collusive limits on retail discounting 
were instrumental in encouraging new entry into e-book distribution by 
brick-and mortar booksellers, spurring entry by online distributors, 
and incentivizing e-reader innovation. To the contrary, brick-and-
mortar stores, including B&N, were selling e-books before 
implementation of the Apple Agency Agreements.\13\ Any expansion of 
brick-and-mortar sales after the Apple Agency Agreements were 
implemented was limited in its impact because new sellers could not 
compete by offering discounts. Likewise, online distributors such as 
B&N and Google had entered or planned to enter the e-book market before 
the Apple Agency Agreements were signed.\14\ Additionally, innovations 
such as the iPad and B&N's Nook were either introduced or already 
planned prior to formation of the Apple Agency Agreements.\15\ In the 
pre-conspiracy competitive market, innovation, discounting, and 
marketing were robust. In contrast, the conspiracy eliminated any 
number of potential procompetitive innovations, such as ``all-you-can-
read'' subscription services, book club pricing specials, and rewards 
programs. See Compl. ] 98; CIS at 9.
---------------------------------------------------------------------------

    \13\ See, e.g., Press Release, The American Booksellers 
Association, ABA Indie Bookstores to Sell eContent, Sony Reader 
(Aug. 25, 2009), https://www.bookweb.org/about/press/20090825.html 
(announcing more than 200 independent bookstores will sell ebooks 
through the ABA's IndieCommerce program).
    \14\ See, e.g., David Weir, Amazon v. Sony, et. al., in War of 
the eBook Giants, BNet.com (Aug. 18, 2009), https://www.cbsnews.com/8301-505123_162-33243776/amazon-v-sony-etal-in-war-of-the-ebook-giants/?tag=bnetdomain (describing the eBook industry as ``a crowded 
field,'' noting Google is one of the other ``important players in 
this space,'' and Apple is expected to enter); Dan Fromer, Sony to 
Unveil E-Reader With Wireless in 2 Weeks?, Business Insider (Aug. 
11, 2009), https://articles.businessinsider.com/2009-08-11/tech/30085553_1_sony-reader-e-reader-wireless.
    \15\ See, e.g., Jeffrey A. Trachtenberg & Geoffrey A. Fowler, 
Barnes & Noble Challenges Amazon's Kindle, Wall Street Journal (July 
21, 2009), available at https://online.wsj.com/article/SB124812243356966275.html.
---------------------------------------------------------------------------

3. Collusion Is Not Acceptable, Even in Response to Perceived 
Anticompetitive Conduct
    B&N, BAM, the ABA, the Authors Guild, and other industry 
participants claim that collusive limits on retail discounting were a 
necessary response to anticompetitive behavior by Amazon and, thus, 
should be preserved.\16\ B&N claims these limits are necessary to avoid 
``competition with a potential Amazon below-cost price-point.'' B&N at 
22-23. The ABA suggests that collusive agency pricing ``corrects a 
distortion in the market fostered primarily by Amazon.com.'' ABA (ATC-
0265) at 1. The Authors Guild insists that removing limits on retailer 
discounting will enable Amazon to use ``predatory pricing'' to return 
to a dominant or ``monopoly'' position and allow the company to charge 
supracompetitive prices for e-books in the future. See, e.g., The 
Authors Guild (ATC-0214) at 1-2.
---------------------------------------------------------------------------

    \16\ Other comments dispute the benefits of retail price 
control. As one commenter put it, Publisher Defendants ``were out-
performed by Amazon'' which, in contrast to Publisher Defendants, 
``did nothing illegal.'' Phillis A. Humphrey (ATC-0250). Another 
writes, ``I don't want to be forced to pay higher prices'' because 
Publisher Defendants ``work together to slow the adoption of this 
relatively new technology.'' Kathy Baughman (ATC-0094).
---------------------------------------------------------------------------

    There is no mistaking the fear that many of the commenters have of 
the prospect of competing with Amazon on price. No doubt Amazon is a 
vigorous e-book competitor. In addition to aggressive pricing, it was 
an early innovator in the e-book market, introducing its Kindle e-
reader more

[[Page 44278]]

than two years before B&N's Nook and Apple's iPad. Of course, low 
prices, fierce rivalries, and innovation are among the core ambitions 
of free markets. Contrary to the apparent views of many commenters, 
``the goal of antitrust law is to use rivalry to keep prices low for 
consumers' benefit. Employing antitrust law to drive prices up would 
turn the Sherman Act on its head.'' Wallace v. Int'l Bus. Machine 
Corp., 467 F.3d 1104, 1107 (7th Cir. 2006).
    Moreover, the notion that Amazon will come to exclude competition 
in e-books and monopolize the industry is highly speculative at best. 
Before the collusive Apple Agency Agreements, B&N had entered the 
market and taken significant share from Amazon. In addition, the e-book 
industry has attracted participation from the likes of Apple, 
Microsoft, Google, and Sony. The future is unclear and the path for 
many industry members may be fraught with uncertainty and risk. But 
certainly there is no shortage of competitive assets and capabilities 
being brought to bear in the e-books industry. A purpose of the 
proposed Final Judgment is to prevent entrenched industry members from 
arresting via collusion the potentially huge benefits of intense 
competition in an evolving market.
    The United States recognizes that many of the comments reflect a 
concern that a firm with the heft of Amazon may harm competition 
through sustained low or predatory pricing. In the course of its 
investigation, the United States examined complaints about Amazon's 
alleged predatory practices and found persuasive evidence lacking. As 
is alleged in the Complaint, the United States concluded, based on its 
investigation and review of data from Amazon and others, that ``[f]rom 
the time of its launch, Amazon's e-book distribution business has been 
consistently profitable, even when substantially discounting some newly 
released and bestselling titles.'' Compl. ] 30.
    Some of the criticism directed at Amazon may be attributed to a 
misunderstanding of the legal standard for predatory pricing. Low 
prices, of course, are one of the principal goals of the antitrust 
laws. Cf. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 
340 (1990). This is because of the unmistakable benefit to consumers 
when firms cut prices. Id. ``Loss leaders,'' two-for-one specials, deep 
discounting, and other aggressive price strategies are common in many 
industries, including among booksellers. This is to be celebrated, not 
outlawed. Unlawful ``predatory pricing,'' therefore, is something more 
than prices that are ``too low.'' Antitrust law prohibits low prices 
only if the price is ``below an appropriate measure of * * * cost,'' 
and there exists ``a dangerous probability'' that the discounter will 
be able to drive out competition, raise prices, and thereby ``recoup[ ] 
its investment in below-cost pricing.'' Brooke Group v. Brown and 
Williamson Tobacco Corp., 509 U.S. 209, 222-24 (1993). No objector to 
the proposed Final Judgment has supplied evidence that, in the dynamic 
and evolving e-book industry, Amazon threatens to drive out competition 
and obtain the monopoly pricing power which is the ultimate concern of 
predatory pricing law. The presence and continued investment by 
technology giants, multinational book publishers, and national 
retailers in e-books businesses renders such a prospect highly 
speculative. Of course, should Amazon or any other firm commit future 
antitrust violations, the United States (as well as private parties) 
will remain free to challenge that conduct.
    Finally, even if there were evidence to substantiate claims of 
``monopolization'' or ``predatory pricing,'' they would not be 
sufficient to justify self-help in the form of collusion. When Congress 
enacted the Sherman Act, it did ``not permit[] the age-old cry of 
ruinous competition and competitive evils to be a defense to price 
fixing,'' no matter if such practices were ``genuine or fancied 
competitive abuses'' of the antitrust laws. See United States v. 
Socony-Vacuum Oil, 310 U.S. 150, 221-22 (1940); see also, e.g., FTC v. 
Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 421-22 (1990) (``[I]t 
is not our task to pass upon the social utility or political wisdom of 
price-fixing agreements.''). Competitors may not ``take the law into 
their own hands'' to collectively punish an economic actor whose 
conduct displeases them, even if they believe that conduct to be 
illegal. See FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 465 (1986) 
(``That a particular practice may be unlawful is not, in itself, a 
sufficient justification for collusion among competitors to prevent 
it.''); Fashion Originators' Guild of Am. v. FTC, 312 U.S. 457, 467-68 
(1941) (rejecting defendants' argument that their conduct ``is not 
within the ban of the policies of the Sherman and Clayton Acts because 
the practices * * * were reasonable and necessary to protect the 
manufacturer, laborer, retailer and consumer against'' practices they 
believed violated the law (internal quote omitted)); Am. Med. Ass'n v. 
United States, 130 F.2d 233, 249 (D.C. Cir. 1942), aff'd 317 U.S. 519 
(1943) (``Neither the fact that the conspiracy may be intended to 
promote the public welfare, or that of the industry nor the fact that 
it is designed to eliminate unfair, fraudulent and unlawful practices, 
is sufficient to avoid the penalties of the Sherman Act.''). Thus, 
whatever defendants' and commenters' perceived grievances against 
Amazon or any other firm are, they are no excuse for the conduct 
remedied by the proposed Final Judgment.
4. Protection From Aggressive Competition Does Not Justify Keeping 
Collusive Agreements Intact
    The ABA, B&N, the Authors Guild, and others contend that brick-and-
mortar booksellers require agency pricing to insulate themselves from 
competition from online e-book sellers, and they accuse online 
competitors of free riding on their efforts.\17\ In support of its 
argument, the ABA claims that online retailers such as Amazon usurp 
brick-and-mortar store ``showrooms,'' encouraging customers to browse 
in physical stores but buy online. However, to the extent that free 
riding occurs, it is just as likely that print book sales by online 
sellers free ride on the efforts of brick-and-mortar booksellers as e-
book sales. The ABA and its members do not distinguish between print 
and e-book online sales, and they offer no explanation for why e-books 
allow free riding by online sellers but print books, which are 
unaffected by the proposed Final Judgment, do not.
---------------------------------------------------------------------------

    \17\ The ABA alleges that Amazon's ``free-riding'' has been 
facilitated, in part, by ``sales tax avoidance,'' a strategy that is 
unavailable to brick-and-mortar booksellers. ABA at 4. A number of 
brick-and-mortar booksellers echoed the ABA's frustration with this 
cost advantage; representative comments include: Gayle Shanks (ATC-
0251) and Kate Stine (ATC-0455).
---------------------------------------------------------------------------

    Further, to the extent a response to ``free riding'' by online 
retailers is desirable, the proposed Final Judgment provides a path for 
it: Settling Defendants may compensate brick-and-mortar retailers for 
e-book ``marketing or other promotional services.'' PFJ Sec.  VI.A. The 
CIS elaborates that this provision is intended ``to support brick-and-
mortar retailers by directly paying for promotion or marketing 
efforts.'' CIS at 14. Rather than subsidizing these services with the 
earnings from collusive e-book profits, Settling Defendants may pay 
brick-and-mortar stores directly for marketing and promotional support. 
Of course, retailers are not entitled to the continuation of a 
collusive equilibrium to maintain the windfall they enjoyed under that 
collusion. As noted above,

[[Page 44279]]

the antitrust laws are not intended, after all, to protect firms from 
the rigors of a competitive market. See United States v. Visa, 163 F. 
Supp. 2d 322, 404-05 (S.D.N.Y. 2001) (rejecting free riding and 
creation of ``equal opportunity'' defenses for joint venture rules that 
prohibited members' issuance of competing credit cards); see also 
Section V.A.3, supra.
5. The Proposed Final Judgment Is Neither Too Regulatory Nor Too 
Ambiguous for Enforcement
    Comments submitted by B&N, Independent Book Publishers, and others 
assert that the proposed Final Judgment is too ``regulatory'' in nature 
and is overbroad. At the opposite extreme, others maintain that at 
least one provision, Section VI.B, is vague and unenforceable. B&N 
argues that the proposed Final Judgment converts the Department into a 
``regulator of an entire industry,'' by restricting future agency 
agreements and the use of MFN clauses, and by imposing enforcement 
provisions. B&N at 21-22. Mistakenly relying on SBC Communications, B&N 
submits that ``when the relief sought in the proposed settlement is 
unrelated to the violations alleged in the complaint, that relief 
should not be ordered.'' Id. at 15. B&N adds that, because these 
remedies are not included in the prayer for relief in the Complaint, 
they cannot be awarded. Id. at 21. In turn, the Independent Book 
Publishers object that Section VI.B, which allows Settling Defendants 
to negotiate retailer agreements to limit aggregate retailer discounts, 
is ``[u]nworkable and [u]nenforceable.'' Independent Book Publishers at 
18.
    To begin with, the proposed Final Judgment does not transform the 
Department into a ``regulator'' of the e-book industry, nor are its 
provisions any broader than necessary to remedy the harm alleged. Far 
from being ``unrelated'' to the harm alleged in the Complaint, most of 
the provisions in the decree are designed to return the market to the 
state of competition it enjoyed before the Apple Agency Agreements were 
signed. Further, nowhere does the SBC Communications court suggest that 
the Tunney Act requires a one-to-one correspondence between the 
specific relief requested in a complaint and the details of the remedy 
required by the consent decree. Instead, it emphasizes that a court 
must ``accord deference to the government's predictions about the 
efficacy of its remedies.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see 
also U.S. Gypsum Co., 340 U.S. at 89 (holding that relief may ``range 
broadly through practices connected with acts actually found to be 
illegal''). Additionally, the provisions in the decree designed to 
facilitate enforcement are narrow, requiring little more than that 
Settling Defendants provide their current and future contracts to the 
Department, which will allow the United States to detect violations of 
the decree. Such a requirement is consistent with past practice, as a 
number of decrees entered in recent cases have required that contracts 
be provided to the Department so that it can monitor enforcement. See, 
e.g., Graftech Int'l Ltd., 2011 WL 1566781 at *3,*5 (requiring 
contracts and other business documents be provided for a period of ten 
years). Consent decrees approving much more burdensome enforcement 
mechanisms have previously been approved by other courts. See, e.g., 
Alex. Brown & Sons, 963 F.Supp. at 237, 239, 242, 246-47 (approving a 
consent decree that required monitoring of up to seventy hours of phone 
conversations per week for five years, because it would help to ensure 
the return of competition). The proposed Final Judgment in this matter 
is no broader than the relief requested in the Complaint, which 
includes a request for an injunction against future misbehavior as well 
as ``further relief as may be appropriate.'' Compl. ] 104.
    B&N, Independent Book Publishers, and others also contend that the 
proposed Final Judgment creates ``complicated safe harbors that are 
difficult to implement or administer.'' B&N at 22; see also Independent 
Book Publishers at 18. The proposed Final Judgment allows Settling 
Defendants to limit retailer discounting authority, up to the total 
commissions a particular retailer earns from the sale of that 
publisher's e-books. PFJ Sec.  VI.B. B&N and other commenters expressed 
concern that it will be impossible for Settling Defendants to enforce 
the limits on retail discounting permitted in this Section. However, 
this provision is entirely voluntary; neither Settling Defendants nor 
their retailers are compelled to enter any such agreement. Should they 
choose to do so, nothing in Section VI.B prohibits a Settling Defendant 
from agreeing with a retailer on reporting and enforcement provisions 
under which the Settling Defendant can ascertain the extent of the 
retailer's discounting of its e-books. For example, audit clauses are 
routinely used in contracts between publishers and retailers to enforce 
pricing and similar terms. See Section V.D.5, infra (discussing 
publishers' use of audit clauses to enforce its contracts with Apple). 
Significantly, Section VI.B was the product of settlement discussions 
between the United States and Settling Defendants. Settling Defendants 
evidently believed, in entering this settlement, that they could 
successfully implement this limited ``safe harbor'' for which they 
negotiated.

B. Individual Responses to Detailed Comments

1. Barnes & Noble, Inc.
    B&N, which represents that it is ``the largest bookseller in the 
United States,'' B&N (ATC-0097) at 8, objects to the proposed Final 
Judgment primarily because blocking the ability of its retail 
competitors to discount is ``in B&N's economic interests,'' and entry 
of the proposed Final Judgment would upset the current collusive 
equilibrium. See id. at 19. In addition to the issues discussed in 
Section V.A, supra, B&N objects that: (a) Section IV.B of the proposed 
Final Judgment voids all of its agency contracts; (b) returning 
discount authority to retailers will have a negative ``competitive 
impact,'' and (c) the Complaint does not provide sufficient factual 
support for the remedy.
a. The Proposed Final Judgment Does Not Void Any Third Party Contracts
    B&N's assertion that the proposed Final Judgment would ``declar[e] 
as null and void [its] agency contracts,'' B&N at 18, is inaccurate. 
The proposed Final Judgment neither voids nor requires the breach of 
any contract between a Settling Defendant and a third party. Rather, it 
requires that, for any such contract that restricts the retailer's 
discounting authority or contains a price MFN and remains in effect 30 
days after entry of the Final Judgment, ``each Settling Defendant 
shall, as soon as permitted under the agreement, take each step 
required under the agreement to cause the agreement to be terminated 
and not renewed or extended.'' PFJ Sec.  IV.B. In other words, Settling 
Defendants simply must exit those agreements as provided for by the 
terms of the contracts themselves. B&N is not, then, simply a company 
concerned about its contractual rights. Instead, more basically, it is 
worried that it will make less money after the conspiracy than it 
collected while collusion was ongoing. See B&N at 19 (stating that B&N 
``enjoy(s) somewhat greater profit margins'' under the collusive agency 
agreements than it ``experienced under the wholesale model.''). This 
concern, that the company will lose benefits generated by collusion, is 
not one that the Tunney Act directs the Court to consider. See Section 
V.A.2, supra.

[[Page 44280]]

b. Returning Discounting Authority to Retailers Is Not Likely To Have a 
Negative ``Competitive Impact''
    B&N maintains that allowing retailer discounting will, by driving 
down consumer prices, subject consumers to a variety of anticompetitive 
effects. But the procompetitive consumer benefits that B&N alleges are 
the result of the conspiracy are either not substantiated or are 
untethered to the conspiracy. B&N does not explain how freeing 
retailers to compete on price will lead to ``uncompetitive,'' rather 
than competitive, pricing, and its claim that the return of retail 
price competition will discourage investment is belied by the fact 
that, shortly after the proposed Final Judgment was filed in this 
matter, B&N was able to attract a $300 million investment from 
Microsoft specifically to ``battle with Amazon and Apple in e-books.'' 
\18\
---------------------------------------------------------------------------

    \18\ See Ingrid Lunden, Microsoft Makes $300M Investment In New 
Barnes & Noble Subsidiary To Battle With Amazon And Apple In E-
books, TechCrunch (April 30, 2012), https://techcrunch.com/2012/04/30/microsoft-barnes-noble-partner-up-to-do-battle-with-amazon-and-apple-in-e-books/; Press Release, Barnes & Noble, Microsoft Form 
Strategic Partnership to Advance World-Class Digital Reading 
Experiences for Consumers, Microsoft News Center (April 30, 2012), 
https://www.microsoft.com/en-us/news/Press/2012/Apr12/04-30CorpNews.aspx.
---------------------------------------------------------------------------

    B&N also claims that ``average'' retail and wholesale prices for e-
books have declined under the current, collusively-established regime, 
although it admits that the price of ``some e-books'' increased 
following Publisher Defendants' collective shift to agency and the 
Apple Agency Agreement price points. See B&N at 13-15. The United 
States obtained evidence that demonstrated that the conspiracy led to 
price increases not only in Publisher Defendants' most popular e-books, 
but also for ``the balance of Publisher Defendants' e-book catalogues, 
their so-called `backlists.' '' Compl. ] 93. Although B&N does not 
describe the data that underlies its comments, it likely includes the 
growing volume of inexpensive (and possibly free) e-books from 
publishers other than Publisher Defendants, which offsets increases in 
the prices of Publisher Defendants' e-books, reducing ``average'' 
retail e-book prices. Further, unlike the United States, B&N does not 
have access to sales data from competing retailers, so its results only 
address one retailer's slice of the market.\19\ However, as the CFA 
observed, even with these uncertainties, B&N's own data suggests that 
the collusive agreement played a role in stabilizing retail e-book 
prices. CFA at 13. As the CFA points out, just as the collusive agency 
agreements were taking effect in the spring of 2010, a trend of falling 
e-book pricing was arrested.\20\
---------------------------------------------------------------------------

    \19\ Even without access to industry data, readers noticed the 
price changes and attributed them to the conspiracy. One ``avid 
reader'' cites several examples of steep price hikes on books she 
had purchased, observing that ``[s]ince `agency' pricing was forced 
on Amazon, book prices have gone up very dramatically.'' Adrianne 
Middleton (ATC-0158).
    \20\ CFA at 13. The CFA also disputes claims by B&N and others 
that publisher margins declined under agency. CFA observes that cost 
savings ``in the range of 50% to 70%'' associated with the 
production and distribution of e-books have boosted publisher 
profits. CFA at 15. According to CFA, publishers ``took the money 
that had been put on the table by technological change and put it in 
their pockets.'' CFA at 16.
[GRAPHIC] [TIFF OMITTED] TN27JY12.000

    Finally, many of the benefits that B&N attributes to collusive 
pricing could be otherwise achieved and may be of questionable worth. 
For instance, the company suggests higher retail prices allow it to 
invest more in services, stock, and space. However, B&N's claim that it 
``must meet'' e-book prices set by a price leader and cannot maintain

[[Page 44281]]

higher prices to invest in its stores, B&N at 20, casts doubt on the 
value that consumers assign to non-price factors when it comes to e-
books. In addition, increased profitability is possible not only by 
raising prices but by lowering costs, which B&N may be free to do 
should e-book sales continue to increase in volume.\21\ The proposed 
Final Judgment also allows Settling Defendants to subsidize B&N and 
other brick-and-mortar retailers for the services they provide. PFJ 
Sec.  VI.A. Publishers need not increase retail e-book prices to 
support bookstores they value; they can support them directly.
---------------------------------------------------------------------------

    \21\ Indeed, cost reduction may be an option for all print 
booksellers. As one former bookstore manager explains: 
``[t]raditional publishing is predicated on the expectation of 
waste,'' citing the routine destruction of unsold books by 
bookstores. Heather Ripkey (ATC-0276) at 1. Ms. Ripkey points out 
that, for e-book sales, ``there is no need to factor such extreme 
waste into the equation. Id.
---------------------------------------------------------------------------

c. The Complaint Provides Sufficient Factual Support for Entry of the 
Proposed Final Judgment, and Delay Will Extend Harm
    B&N challenges the ``factual basis'' for a public interest finding, 
and calls on the Court to ``conduct a searching review'' as part of its 
public interest determination. B&N at 18. The company submits that the 
proposed Final Judgment ``requires close scrutiny because of its 
potential impact on the national economy and culture, including the 
future of copyrighted expression * * *'' Id. at 16.
    The Tunney Act does not require the Court to gather evidence to 
supplement the facts alleged in the Complaint, no matter how broad an 
impact the decree may have. Instead, the statute simply allows the 
Court to gather additional evidence, at its discretion. See 15 U.S.C. 
16(f) (``In making its determination * * * the court may--(1) take 
testimony * * *'' (emphasis added)). Nor is the Court compelled to 
conduct an evidentiary hearing or permit intervention. See 15 U.S.C. 
16(e)(2) (``Nothing in this section shall be construed to require the 
court to conduct an evidentiary hearing * * *''). This is consistent 
with legislative history; as Senator Tunney explained: ``The court is 
nowhere compelled to go to trial or to engage in extended proceedings 
which might have the effect of vitiating the benefits of prompt and 
less costly settlement through the consent decree process.'' 119 Cong. 
Rec. 24,598 (1973).
    In support of its position, B&N urges the Court to follow the 
expansive approach taken by the United States District Court for the 
District of Columbia in SBC Communications. But that case differed from 
this one in the complexity of the harm alleged, the relief imposed, and 
in the factual detail included in the complaint. SBC Communications 
considered potential anticompetitive effects in dozens of local 
markets, each including three separate product markets, arising from 
the merger of two telecommunications companies. 489 F. Supp. 2d at 18-
19. The settlement under review in the Tunney Act process called for 
the divestiture of ten-year leasehold interests that gave the holder 
the right to use certain telecommunications fibers in 748 individual 
buildings. See id. at 7. In contrast, the United States, in this case, 
alleged a per se violation of the Sherman Act in a single national 
market, affecting one product area. Further, the conspiracy alleged in 
this matter was effectuated through the Apple Agency Agreements, the 
terms of which are not in dispute.\22\ In addition, because litigation 
in this matter is proceeding against the three non-settling defendants, 
the United States submitted a detailed, thirty-five page complaint in 
this matter, which included easily verified public events and 
statements. In contrast, to support the relief requested in SBC, where 
the United States had already reached settlement terms with all 
parties, the United States submitted a twelve-page complaint typical of 
cases where the dispute has been wholly resolved. See id. at 9. SBC did 
not involve ongoing litigation or discovery. Indeed, in this case, 
litigating defendants have already admitted key allegations in their 
answers to the Complaint.\23\
---------------------------------------------------------------------------

    \22\ As the SBC Communications court observed, the United States 
``need not prove its underlying allegations in a Tunney Act 
proceeding.'' 489 F. Supp. 2d at 20. Requiring it to do so ``would 
fatally undermine the practice of settling cases and would violate 
the intent of the Tunney Act.'' Id. (citing 15 U.S.C. 16(e)(2), 
which states that the Act does not require a court to hold an 
evidentiary hearing).
    \23\ See, e.g., Apple Ans. at ] 62 (``Given the looming 
announcement of the iPad, each publisher would have been aware that 
Apple was necessarily negotiating simultaneously with numerous 
publishers and was attempting to develop an approach that would 
attract a sufficient number of publishers in total to warrant 
Apple's entry.''); Penguin Ans. at 33-34 (``Penguin admits that 
Penguin Group CEO John Makinson on June 16, 2009 attended a social 
dinner at Picholine along with the CEO of Random House, as well as 
the CEOs of Hachette, Harper Collins, and Simon & Schuster--but not 
the CEO of Macmillian. While, in addition to purely social matters, 
general book industry issues and trends were discussed at high-
levels of generality, including the growth of eBooks and Amazon's 
role therein, Makinson did so pursuant to antitrust legal advice * * 
*''); Macmillan Ans. at ] 72 (``* * * admits that during December 
2009 and January 2010, Mr. Sargent placed at least seven calls to 
the CEOs of other Publisher Defendants, five of which lasted no more 
than twenty seconds.'').
---------------------------------------------------------------------------

    Moreover, the ``impact'' of the proposed Final Judgment will be 
limited to restoring competitive conditions that prevailed before 
collusion ensued--only two years ago. Under these circumstances, 
detailed fact finding is likely not needed to evaluate the probable 
effects of the entry of the proposed Final Judgment. Further, delaying 
entry of the proposed Final Judgment to gather additional factual 
support will necessarily delay the beneficial impact of its provisions. 
In SBC, the United States moved for Entry of the Final Judgment on 
April 5, 2006, but the decree was not entered by the court for nearly a 
year, on March 29, 2007. See SBC Commc'ns, 489 F. Supp. 2d at 8, 24. 
The same delay of entry of the Final Judgment in this case would exceed 
the period the Court has reserved for litigation with respect to the 
non-settling defendants. Even a much shorter delay may threaten to 
disrupt the discovery process for the parties that continue to 
litigate. Any extension of the collusion that already has persisted for 
two years is unwarranted, and should be avoided.
2. Consumer Federation of America
    The CFA is the only consumer organization that submitted a comment. 
It wrote in support of the proposed Final Judgment. The CFA is an 
association of almost 300 non-profit public interest groups. It 
frequently is called upon to advise on Internet and digital product 
issues. CFA (ATC-0775) at 1. The CFA's analysis: (a) Debunks the 
claimed procompetitive benefits of collusive pricing; and (b) concludes 
the proposed Final Judgment is not overbroad.
a. CFA Explains How Collusive Agency Pricing Harms Consumers
    The CFA disputes the ``[f]airytale'' that collusive agency pricing 
produced benefits for consumers, reasoning that: (a) Collusion on price 
was not necessary to attract entry; (b) if consumers valued services 
provided by brick-and-mortar booksellers, they would be willing to pay 
for those services; and (c) most such benefits are otherwise available.
    First, the CFA observes that the e-book ``space'' experienced 
significant entry ``before and after the advent of the cartel pricing 
model.'' Id. at 16. The CFA points out that B&N committed to entry 
before Publisher Defendants and Apple entered into agency contracts, no 
evidence suggests Apple would have withheld the iPad in the absence of 
collusion, and ``[w]e doubt that Microsoft will now exit the e-book 
market, or cancel its plans to offer a

[[Page 44282]]

tablet'' should collusive pricing end. Id. at 16.
    Second, the CFA questions the ``carefully concocted, self-serving 
argument'' that the physical book browsing allowed by brick-and-mortar 
bookstores is essential to the ``literary ecosystem'' when consumers 
``are unwilling to pay for'' that experience. Id. at 3-4. According to 
the CFA, accepting ``cartel agency pricing'' in order to maintain 
physical bookstores improperly allows ``[c]olluding publishers, not the 
marketplace [to] decide what is good for consumers.'' Id. at 4.
    Finally, the CFA points out that many of the benefits of bookstores 
can be realized digitally. Browsing, for instance, may be more 
effective online, where search engines and algorithms that personalize 
recommendations may make readers more inclined to try new authors and 
titles. Id. at 21. Benefits like these may, in fact, be lost if 
collusion, not competition, guides the market. In sum, the CFA 
concludes, ``[i]f publishers can dictate which business models flourish 
and which fail, consumers and authors will be worse off,'' because such 
a practice confers no advantage on the consumer, and might discourage 
procompetitive developments in the digital realm. Id. at 19.
b. The Remedy Appropriately Addresses the Collusion
    The CFA rejects the assertions of B&N that the proposed Final 
Judgment imposes ``an unprecedented, draconian remedy that illegally 
and unnecessarily interrupts routine business practices * * *'' Id. at 
11. As the CFA explains, the proposed remedy is consistent ``with 
normal antitrust practices'' and is less intrusive than remedies 
imposed to address antitrust concerns in related industries. Id. at 10-
11. The CFA also articulates the importance of prohibiting Settling 
Defendants from restricting retailer discounting of e-books for two 
years: ``Without a moratorium on agency contracts for the colluding 
publishers, the publishers could tear up the offending contracts and 
immediately sign identical contracts, claiming to act individually to 
adopt terms and conditions that were worked out by the cartel. Such a 
remedy would make a mockery of antitrust law and enforcement.'' Id. at 
9.\24\ The United States shares this concern.
---------------------------------------------------------------------------

    \24\ The CFA also notes that the two-year period is shorter than 
antitrust agencies normally impose to allow a ``market to heal.'' 
CFA at 8. But a few citizen comments took the contrary position that 
three to six months would provide a sufficient ``competitive 
reset.'' See, e.g., Catherine Flynn Devlin (ATC-0084).
    The United States determined that too short a period of time, 
such as three to six months, would not allow e-book retailers to 
stagger sufficiently the termination and renegotiation of their 
contracts with publishers. Allowing negotiations with multiple 
publishers at the same time risks continuing the collusion. See CIS 
at 10 (``Additionally, a retailer can stagger the termination dates 
of its contracts to ensure that it is negotiating with only one 
Settling Defendant at a time to avoid joint conduct that could lead 
to a return to the collusively established previous outcome.''). 
Also, if the cooling-off time period were too short, Settling 
Defendants might simply choose to forgo the sale of e-books through 
significant retailers in that short period of time, awaiting the 
opportunity to return to the collusively established agency terms.
---------------------------------------------------------------------------

3. Independent Book Publishers
    The ``Independent Book Publishers,'' a group of mid-sized trade 
publishers consisting of Abrams Books, Chronicle Books, Grove/Atlantic, 
Inc., Chicago Review Press, Inc., New Directions Publishing Corp., W.W. 
Norton & Company, Perseus Books Group, The Rowman & Littlefield 
Publishing Group, Inc., and Workman Publishing, submitted a joint 
comment.\25\ They object to the proposed Final Judgment because they 
``benefitted significantly from the fact that the Big Six publishers 
were able to adopt agency pricing arrangements with Amazon.'' 
Independent Book Publishers (ATC-0727) at 2. However, to the extent the 
Independent Book Publishers received benefits from Settling Defendants' 
conspiracy to raise e-book prices, those benefits were fruits of the 
conspiracy and that loss is not relevant in a Tunney Act determination. 
See 15 U.S.C. 16(e)(1)(B).

    \25\ These nine publishers also complain that the United States 
did not contact them during its investigation. Independent Book 
Publishers (ATC-0727) at 3, 10. However, the United States reached 
out to a number of other publishers during the course of its 
investigation, and routinely attempts not to burden industry 
participants with demands for duplicative or cumulative information. 
In any event, industry participants that feel they have relevant 
information are free to contact the United States to share that 
information. When, as was the case here, the existence of an 
antitrust investigation is disclosed publicly, interested 
individuals frequently reach out to the United States to share their 
views and information. See, e.g., Grant Gross, DOJ investigating 
ebook pricing, official says, Macworld (Dec. 7, 2011), https://www.macworld.com/article/1164113/doj_investigating_ebook_pricing.html.
---------------------------------------------------------------------------

    The Independent Book Publishers do not claim to be concerned about 
their current e-book contracts with any retailer, as they are not 
agency agreements. They instead take up the cause of their competitors, 
the three Settling Defendants, noting that agency agreements are not 
``inherently unlawful,'' and complaining that ``the proposed 
settlements * * * would effectively ban the use of the agency model by 
Settling Defendants for two years.'' Independent Book Publishers at 13. 
They believe it would be more appropriate to ``void the existing agency 
agreements'' and allow Settling Defendants to enter into ``new agency 
agreements in the absence of collusion.'' Id. at 14. The Independent 
Book Publishers concede that the proposed Final Judgment does not 
dictate a business model, but only prohibits agreements that do not 
allow the retailer to discount prices (subject to the option of 
contracting to limit discounts to commissions earned over the course of 
a year). They say that this takes ``true agency sales agreement[s]'' 
off the table for two years for Settling Defendants. Id. at 14.
    As discussed above, the United States determined that terminating 
existing agency agreements, without imposing limited restrictions on 
the contracts that would replace them, would allow Settling Defendants 
to immediately return to the same collusively-established contractual 
terms. Such an outcome would fail to eradicate the anticompetitive 
effects of the collusion. Courts are ``empowered to fashion appropriate 
restraints on [the trangressor's] future activities both to avoid a 
recurrence of the violation and to eliminate its consequences.'' Nat'l 
Soc'y of Prof'l Eng'rs, 435 U.S. at 697; see also Zenith Radio Corp., 
395 U.S. at 132-33 (upholding an injunction against the conspiracy to 
block Zenith's entry into worldwide markets that were not at issue in 
the litigation, after finding that defendants conspired to block Zenith 
from entering the Canadian market). While agency agreements are not 
inherently illegal, collusive agreements that prevent price competition 
are, and the settlement is designed to unwind the effects of agency 
contracts stemming from a collusive agreement.
4. American Booksellers Association and Members
    The ABA submitted a detailed comment objecting to the restrictions 
on agency pricing in the proposed Final Judgment as well as other 
issues, most of which were discussed above.\26\ The ABA raised one 
unique complaint about the impact of the proposed Final Judgment on 
agreements between ABA member organization IndieCommerce

[[Page 44283]]

and Google, which were negotiated after April 2010. ABA (ATC-0265) at 
5. The ABA claims that these agreements ``occurred long after * * * the 
dates at issue in the civil complaint,'' and were not the product of 
collusion. Id. However, the proposed Final Judgment, which addresses 
only contracts in which Settling Defendants are parties, has no direct 
or immediate impact on arrangements between ABA member booksellers and 
Google. Of course, it is certainly possible that Google may seek to 
modify the terms of its agreements with the bookstores to reflect its 
new authority to discount the books of the three Settling 
Defendants.\27\ See also Section V.A.1, supra.
---------------------------------------------------------------------------

    \26\ The ABA also solicited its member booksellers to submit 
comments in opposition to the proposed Final Judgment, outlining its 
objections. As a result, the United States received approximately 
200 comments from bookstores, which largely mirrored the ABA's 
arguments. Representative examples include Susan Novotny (ATC-0213), 
Kenneth J. Vinstra (ATC-0216), and Barbara Peters (ATC-0295).
    \27\ Prior to the filing of the Complaint, Google announced that 
it was terminating its reseller program in 2013 since it had ``not 
gained the traction'' Google had hoped for and because it was 
``clear that the reseller program has not met the needs of many 
readers or booksellers.'' Scott Dougall, A Change to Our Retailer 
Partner Program: eBooks Resellers to Wind Down Next Year, Google 
Book Search (Apr. 5, 2012), https://booksearch.blogspot.com/2012/04/change-to-our-retailer-partner-program.html.
---------------------------------------------------------------------------

5. Authors Guild and Members
    The Authors Guild, representing a collection of writers and 
literary agents, submitted a comment that addressed the impact of 
removing collusive pricing restrictions on price competition from 
Amazon. The Authors Guild claims the settlement will ``allow e-book 
vendors to routinely sell e-books at below cost, so long as the vendors 
don't lose money over the publisher's entire list of e-books over the 
course of a year.'' Authors Guild (ATC-0214) at 1. The Authors Guild 
also asked its members to submit comments, adding that the settlement 
``needlessly imperils brick-and-mortar bookstores while it backs an 
online monopolist and discourages competition among e-book vendors and 
e-book device developers.'' \28\ Many authors and agents took up the 
torch, submitting comments that paraphrased the arguments laid out by 
the Authors Guild or, in some cases, simply attached the Authors 
Guild's email, verbatim.\29\
---------------------------------------------------------------------------

    \28\ See The Justice Department's E-Book Proposal Needlessly 
Imperils Bookstores; How to Weigh In, The Authors Guild (June 4, 
2012), https://blog.authorsguild7.org/2012/06/04/the-justice-departments-e-book-proposal-needlessly-imperils-bookstores-how-to-weigh-in/; see also Last Call. Tell DOJ: Don't help Amazon target 
booksellers, The Authors Guild (June 22, 2012), https://authorsguild.org/advocacy/articles/last-call-tell-the-justice-department.html.
    \29\ Representative comments include: T.J. Stiles (ATC-0177), 
Kristy Athens (ATC-0465), and Mirka Knaster (ATC-0462).
---------------------------------------------------------------------------

    The Authors Guild's primary argument, that collusion was a 
justified response to competition from low-priced rivals, and that 
collusive pricing is necessary to protect brick-and-mortar bookstores, 
is addressed in Section V.A.3, supra. Likewise, the Authors Guild's 
concerns with Section VI.B of the proposed Final Judgment, which 
permits (but does not require) Settling Defendants to limit retailer 
discounting to the aggregate commissions earned by the retailer, are 
addressed in Section V.A.5, supra. The Authors Guild and its members, 
however, make two unique observations: (a) Books are important cultural 
products and should be protected by price controls despite the 
antitrust laws; and (b) agency pricing is necessary to protect quality 
and diversity in books. But, as discussed below, some Guild members 
submitted comments disagreeing with their association's position, and 
other self-published authors see competition by e-book retailers as an 
opportunity to reach an audience without interference by traditional 
publishers.
a. The Sherman Act Applies to the Publishing Industry
    While the Authors Guild did not make this argument directly, many 
of its members stated or implied that collusion or price fixing should 
be permitted in the publishing industry. They make the point that books 
play an important cultural role in our society. From there, these 
writers leap to the conclusion that a competitive marketplace cannot 
properly attract the investment required for books to survive. They 
posit that, absent an agreement that stops retailers from discounting 
e-books, declining revenues would undermine the perceived value of all 
books, reduce author royalties, and put booksellers out of business. A 
comment typical of this perspective suggests ``fixed pricing on books'' 
should be allowed ``to protect their value.'' Rebecca Gardner (ATC-
0077) at 1. A literary agent likewise observed that price-fixing models 
are being adopted ``[n]early across the board'' in other countries, in 
response to online retail discounters. Molly Friedrich (ATC-0232) at 2. 
However, an argument that a particular industry or market deserves a 
blanket exemption from the antitrust laws should be directed to 
Congress, rather than the United States or the Court. Otherwise, all 
industries are subject to ``a legislative judgment that ultimately 
competition will produce not only lower prices, but also better goods 
and services.'' Nat'l Soc'y of Prof'l Eng'rs, 435 U.S. at 695.
b. There Is No Support for the Notion That Retail Discounts Will Reduce 
Quality or Diversity in Publishing
    Many authors and agents complained that removing the ability of 
Settling Defendants to prohibit discounting would dissuade or prevent 
publishers from investing in ``quality'' books, or limit the variety of 
books likely to be published. Many comments state or imply that 
Publisher Defendants must stand in the place of consumers to preserve 
quality. Such a paternalistic view is inconsistent with the intent of 
the antitrust laws, which reflect a legislative decision to allow 
competition to decide what the market does and does not value.\30\ A 
market fettered by a collusive agreement cannot properly assign such a 
value. These comments may also reflect a misunderstanding of the 
discounting authority granted by the proposed Final Judgment, which 
requires only that Settling Defendants, for two years, give retailers 
the authority to compete away their own margins. PFJ Sec. Sec.  V.A, 
VI.B. The proposed Final Judgment, however, does not otherwise limit 
how e-books are sold. Publishers would be free, for example, to 
negotiate a wholesale price with retailers, and require retailers to 
pay them the same amount per e-book sold, regardless of the discount 
applied to the sale to the consumer, just as they did prior to the 
collusive agreements. Thus, the author can be paid out of higher 
wholesale price, while consumers buy more of the author's books at a 
lower retail price.
---------------------------------------------------------------------------

    \30\ Many authors and readers expressed skepticism of the 
capacity or willingness of Publisher Defendants to protect 
``quality'' of publications. As a retired college librarian put it, 
``[t]o suggest that only the Big Six are arbiters of quality is 
belied by much of what they have published,'' citing the absence of 
copy editing, long delays in publication, and a short shelf life for 
most titles. Eric Welch (ATC-0021) at 2. One reader observed 
anecdotally that Publisher Defendants recently granted an advance to 
reality television personality ``Snooki'' for a ghost-written book, 
implying themove was in response to commercial potential rather than 
literary quality. Cathy Greiner (ATC-0073).
---------------------------------------------------------------------------

c. The Authors Guild's Opposition to the Settlement Is Not Universal
    It is worth noting that members of the Authors Guild also wrote in 
support of the proposed Final Judgment and against the Authors Guild's 
position. Joe Konrath, author of 46 books, clarifies that letter-
writing campaigns by the Authors Guild and the Authors Representatives 
``did not solicit the views of their members, that they in no way speak 
on behalf of all or even most of their members.'' Konrath (ATC-0144) at 
1. He observes that agency pricing has slowed global growth and hurt

[[Page 44284]]

consumers and writers. Lee Goldberg, a published author and member of 
the Authors Guild writes, ``I believe that it's detrimental to authors 
and readers, as well as to the establishment of a free and healthy 
marketplace, for publishers to collude with Apple to create 
artificially inflated prices for ebooks.'' (ATC-0553). Author Laura 
Resnick writes, ``breaking the law is not a reasonable reaction to 
being faced with aggressive business competition.'' (ATC-0801).
d. Self-Published Authors Disagree That Collusive Agency Pricing Is 
Necessary To Protect Authors' Interests
    Many comments from self-published authors, in particular, expressed 
appreciation that Amazon opened a path to publication that was immune 
from Publisher Defendants' hegemony. David Gaughran, writing on behalf 
of 186 self-published co-signors, writes that ``Amazon is creating, for 
the first time, real competition in publishing'' by charting a ``viable 
path'' for self-published books. Gaughran (ATC-0125) at 1, 3. Mr. 
Gaughran observes that ``[t]he kind of disruption caused by the 
Internet is often messy,'' and those who ``do quite well under the 
status quo'' naturally resist change. Id. at 2. He compares publishers 
and literary agents to ``[a]ll kinds of middlemen,'' which have ``gone 
from being indispensible to optional'' with the rise of the Internet. 
Id. Writing in support of the proposed Final Judgment, Mr. Gaughran 
confirms that self-published writers, in particular, see opportunities 
in a market not subject to collusive pricing.

C. Additional Responses To Comments With Unique Perspectives

1. Brian DeFiore, Literary Agent
    Many literary agencies submitted comments in opposition to the 
proposed Final Judgment, but Mr. DeFiore's submission raised a unique 
issue.\31\ He argues that, by removing limits on retailer discounting, 
the proposed Final Judgment will allow retailers to apply discounts 
disproportionately, reducing the retail price of some titles much more 
than others. He argues that the uneven price cuts undermine the ability 
of authors to maximize their royalty income and may impact the value of 
individual author's rights in future books, foreign markets, film, and 
television. DeFiore (ATC-0242) at 3. However, to the extent that author 
royalties were buoyed by collusive pricing, that windfall should not be 
protected at the expense of thwarting the collusion. See Section V.A.2, 
supra.
---------------------------------------------------------------------------

    \31\ Simon Lipskar's comment (ATC-0807) is the most detailed of 
the many comments submitted by literary agents and agencies, but it 
did not raise unique issues. A less detailed, but typical, comment 
was submitted by the Association of Author's Representatives (ATC-
0003).
---------------------------------------------------------------------------

    The adequacy of the Final Judgment should be evaluated in light of 
the antitrust violations alleged in the Complaint, SBC Commc'ns, 489 F. 
Supp. 2d at 14-15, and those allegations explicitly address the 
contractual relationships between Settling Defendants and retailers. 
Authors have independent contracts with Settling Defendants that govern 
their intellectual property licenses, and those agreements are not 
discussed in the Complaint or addressed by the proposed Final Judgment. 
Thus, all of the intellectual property rights of authors remain subject 
to market competition. To the extent Mr. DeFiore's complaint reflects 
dissatisfaction with the state of that competition, it is not relevant 
to the proposed Final Judgment.
2. Bob Kohn, CEO of Royalty Share
    Copyright attorney and CEO of RoyaltyShare, Bob Kohn, submitted a 
lengthy comment that focused largely on his criticisms of the 
Complaint. Kohn (ATC-0143). Mr. Kohn offers the Court his views of the 
proper standard it should employ in ruling on a motion to dismiss, even 
though none of the settling or non-settling defendants (each of which 
is represented by highly experienced and sophisticated counsel) chose 
to move to dismiss the Complaint. Similarly, Mr. Kohn suggests a series 
of dispositive motions that the Court should grant in favor of the 
defendants, although he does not indicate whether defendants themselves 
contemplate such motions or explain why the Court should substitute Mr. 
Kohn's litigation judgments for those of defendants' counsel. Mr. 
Kohn's determinations that ``The Complaint Alleges the Wrong Relevant 
Market,'' or ``Collective Action by Competitors to Fix Prices is Not 
Always Illegal,'' id. at 20, 21, reflect a misunderstanding of the role 
that public comments play in the Court's Tunney Act inquiry. For 
example, seeing corollaries between this case, copyright law, and the 
music industry, Mr. Kohn concludes that the proposed Final Judgment is 
not in the public interest because the ``factual allegations in the 
Complaint are plausibly explained by lawful behavior.'' Id. at 12. 
However, the Complaint sets forth in considerable detail the basis for 
a finding that the defendants have engaged in per se unlawful conduct. 
Defendants are, of course, free to dispute that evidence just as they 
are entitled to settle with the government. It would hardly be in the 
public interest to exclude settlements of antitrust cases whenever a 
member of the public asserts that there are possible ``plausible'' 
lawful explanations for the defendants' behavior. And it is difficult 
to see how the Court could reach the same conclusions as Mr. Kohn 
without the benefit of a full-blown, lengthy and expensive trial, thus 
substantially undercutting much of the benefit of the settlements. It 
is a misreading of the Tunney Act and the role of public comments to 
suggest that either the government or private parties should be so 
severely constricted in settling antitrust cases. Microsoft, 56. F.3d 
at 1459.
    Mr. Kohn also takes issue with the standard of review articulated 
in the CIS for a Tunney Act determination. Mr. Kohn submits that, to 
find a settlement only ``within the reaches'' of the public interest is 
inconsistent with the text of the Tunney Act, as amended in 2004. Kohn 
at 16. He maintains this argument though the same standard was applied 
in this District as recently as last year in KeySpan Corp.,763 F. Supp. 
2d at 637. Kohn at 16. Further, the court in SBC Communications 
thoroughly analyzed the legislative intent behind the 2004 amendments 
and concluded that a settlement should be approved if it lies ``within 
the reaches of the public interest.'' 489 F. Supp. 2d at 17.
    Mr. Kohn also discusses language added to the Tunney Act in 2004 
that requires the court to consider the impact of entry of the decree 
``upon competition in the relevant market or markets.'' Kohn at 16 
(emphasis omitted). However, the legislative history of that amendment 
does not support Mr. Kohn's argument that the change was designed to 
expand the court's role in Tunney Act review. Instead, it indicates the 
opposite, that the change was intended only to focus review on the 
competitive impact of ``the judgment, rather than extraneous factors 
irrelevant to * * * antitrust enforcement.'' 150 Cong Rec S 3610, *3618 
(statement of Senator Kohl). Accordingly, ``the 2004 amendments have 
left in place the [D.C.] Circuit's holding that this Court cannot look 
beyond the complaint in making the public interest determination, 
unless [a] complaint is drafted so narrowly as to make a mockery of 
judicial power.'' SBC Comm'cs, 489 F. Supp. 2d at 15.
3. Steerads, Inc.
    Steerads, Inc. (``Steerads'') is a Canadian digital advertising 
corporation based in Montreal, Quebec.\32\ Steerads

[[Page 44285]]

concludes that the terms of the proposed Final Judgment are ``clear and 
complete, thus enforceable.'' Steerads (ATC-0374) at 1. The company 
requests, though, that the United States ``insist on the inclusion of a 
prima facie provision'' in the proposed Final Judgment in order to 
``[e]ase[] recovery of treble damages'' by private litigants. Id. at 3. 
Steerads, however, misreads the statute, which allows the use of a 
``final judgment or decree'' as prima facie evidence in other 
proceedings, but not if the ``consent judgment or decree[ ] [is] 
entered before any testimony has been taken.'' 15 U.S.C. 16(a). Because 
no testimony has been taken in this litigation, the proposed Final 
Judgment would not constitute prima facie evidence in any private 
litigation, regardless of how the decree is worded. Even if that were 
not the case, the Supreme Court has long endorsed the value of consent 
judgments in cases where there is no finding of liability, because they 
avoid the costs and delays associated with litigation.\33\
---------------------------------------------------------------------------

    \32\ See STEER>ads.com, https://www.steerads.com/; Steerads (ATC-
0374) at 4.
    \33\ See Swift & Co. v. United States, 276 U.S. 311, 327 (1928) 
(refusing to vacate injunctive relief in consent judgment that 
contained recitals in which defendants asserted their innocence); 
United States v. Armour and Co., 402 U.S. 673, 676, 681 (1971) 
(interpreting consent decree in which defendants had denied 
liability for the allegations raised in the complaint); see also 18A 
Charles Alan Wright & Arthur R. Miller, et al., Federal Practice and 
Procedure Sec.  4443, (2d ed. 2002) (``central characteristic of a 
consent judgment is that the court has not actually resolved the 
substance of the issues presented'').
---------------------------------------------------------------------------

4. National Association of College Stores
    The National Association of College Stores (``NACS'') expressed 
concern that the Proposed Final Judgment will apply to ``the entire e-
book universe'' including ``e-textbooks.'' NACS (ATC-0845) at 7-8. NACS 
claims this broad application will injure third parties, including 
textbook publishers and textbook retailers, which would be barred from 
reaping the potential procompetitive benefits they might realize from 
the use of agency pricing. Id. at 9-10. NACS claims the Complaint did 
not identify harm arising in the e-textbook market, so the Final 
Judgment should be modified to exclude e-textbooks from the prohibition 
of limits on retail discounting in the decree. Id. at 11-12. However, 
it was not necessary to expressly exclude e-textbooks from the proposed 
Final Judgment because none of the Settling Defendants sell e-
textbooks, and the Complaint already makes it clear that ``e-books'' in 
the context of this case does not encompass ``[n]on-trade e-books 
includ[ing] * * * academic textbooks * * *.'' Compl. ] 27 n.1; see also 
Compl. ] 99.
5. American Specialty Toy Retailing Association
    The American Specialty Toy Retailing Association (``ASTRA'') writes 
that the proposed Final Judgment will have a chilling effect on the use 
of agency pricing in other markets. It reasons that the decree ``could 
create an environment in which manufacturers are uncertain about the 
legality of an important pro[]competitive pricing policy.'' ASTRA (ATC-
0228) at 1. However, the proposed Final Judgment is limited to the 
three Settling Defendants, none of which sells toys. Further, because 
the CIS expressly states that agency pricing is permissible when 
unpaired with anticompetitive conduct, there seems to be no plausible 
risk of confusion.

D. Apple, Inc.

    Apple, a non-settling defendant and party to the conspiracy 
described in the Complaint, opposes Court entry of the decree. Apple 
complains that the proposed Final Judgment: (1) Treats Apple unfairly; 
(2) ``seeks to impose a business model,'' rather than letting market 
forces play out; and (3) ``will enable the retrenchment of Amazon's e-
book monopoly.'' Apple (ATC-0703) at 1, 7. While much of what Apple 
offers in its comment merely echoes the same points other commenters 
have made and should be rejected for the reasons noted above, the 
United States offers a detailed response to Apple because of its 
central role in the events leading to the underlying enforcement 
action. As set forth below, Apple's protests are based on factual 
errors and on an unsound view of Tunney Act jurisprudence.
1. The Proposed Final Judgment Reasonably Requires the Termination of 
the Apple Agency Agreements
    Apple argues that it has been improperly ``singled out'' for 
``uniquely punitive restrictions on its ability to negotiate 
agreements.'' Id. at 2. The requirement that the Apple Agency 
Agreements be terminated is reasonable, though, given the role of those 
agreements in cementing the terms of the conspiracy alleged. Further, 
stripped of Apple's rhetoric, there are only two substantive 
distinctions between Settling Defendants' required conduct as to Apple 
(governed by Section IV.A) and their required conduct as to all other 
e-book retailers (governed by Section IV.B), and those distinctions are 
both modest and necessary.
    The agency agreements between Apple and Settling Defendants must be 
terminated within seven days of entry of the proposed Final Judgment, 
while Settling Defendants have thirty days to ``take each step 
required'' to terminate agreements with other retailers that include 
prohibited terms. See PFJ Sec. Sec.  IV.A, IV.B. However, as the 
Complaint alleges, the Apple Agency Agreements did not arise from 
bilateral negotiations between a retailer and a number of publishers, 
but from a conspiracy encompassing Apple and Publisher Defendants. 
Apple alone among e-book retailers was at the bargaining table when 
these collusive agency contracts were agreed to. Further, the Apple 
Agency Agreements also require immediate termination because they form 
the bedrock of the conspiracy and restrain trade directly. See, e.g., 
Paramount Pictures, 334 U.S. at 149 (ordering the termination of 
contracts used in collusion); Nat'l Lead Co., 332 U.S. at 328 
(upholding termination of patent cross licenses that allowed the 
patents to be ``forged into instruments of domination of an entire 
industry.'').
    In addition, Apple's claim that it ``will have to quickly negotiate 
new agreements with these publishers under a dark cloud of uncertainty 
in just seven days,'' Apple at 5, ignores that more than three months 
have already passed since the proposed Final Judgment was filed, during 
which time Apple has been free to pursue its negotiations with Settling 
Defendants. Indeed, even under Apple's existing contracts with each 
Settling Defendants, each publisher has rights to terminate its own 
agreement. Likewise, Apple too has the right to terminate its agreement 
with each Settling Defendant on thirty to sixty days' notice.\34\ Both 
Apple and Settling Defendants have been free even to execute new 
agreements during this period, so long as such agreements comply with 
the proposed Final Judgment. It is, in fact, quite typical that parties 
to a proposed Final Judgment execute their provisions or prepare to do 
so prior to entry of the decree.\35\
---------------------------------------------------------------------------

    \34\ For instance, Apple's agreement with Hachette, signed Jan. 
24, 2010, reads: `` `Term' means the period beginning on the 
Effective Date and continuing for one (1) year, and renewing for 
one-month successive periods unless * * * terminated at any time 
after the first year period by either Party upon advance written 
notice of not less than thirty (30) days.'' EBOOK AGENCY 
DISTRIBUTION AGREEMENT, Sec.  1(m), APPLETX00018481 at -18482 
(emphasis added). This was the case when the proposed Final Judgment 
was being negotiated (and the United States has no reason to believe 
this has changed).
    \35\ For example, in United States v. Graftech Int'l Ltd., 
GrafTech implemented, prior to entry of the decree, a requirement 
that it execute new contracts with its supplier. See GrafTech, 2011 
WL 1566781 at *2 (requiring that ``[d]efendants shall not consummate 
the Merger until the Supply Agreements have been modified in a 
manner consistent with this Final Judgment.''). Divestitures 
required for consummation of proposed mergers are also commonly 
executed and approved by the United States prior to entry of the 
Final Judgment.

---------------------------------------------------------------------------

[[Page 44286]]

2. The Proposed Final Judgment Does Not ``Impose a Business Model''
    Apple asserts twice in a single page that the proposed Final 
Judgment would ``dictate business models.'' Apple at 7; see also id. at 
1 (``impose a business model''). Apple fails, however, to explain what 
business model the proposed Final Judgment would dictate. That is 
because the proposed Final Judgment does nothing of the sort. Apart 
from the specific and limited proscriptions necessary to ensure the 
effectiveness of the consent decree, the proposed Final Judgment leaves 
open all possible legal business arrangements. Indeed, even Apple 
recognizes that ``[t]he Proposed Judgment modifies only two terms in 
Apple's agreements with the Settling Defendants--the MFN and Apple's 
pricing discretion under the agency agreement.'' Id. at 4.
    To the extent the proposed Final Judgment requires changes to the 
business relationship between retailers such as Apple and Settling 
Defendants, it ensures that retailers have more flexibility, not less. 
Apple's stated position on this point is that ``eBook retailers such as 
Apple and Barnes & Noble should be free to continue with the agency 
model without Government-mandated changes.'' Id. at 3. They are indeed 
free to do so. Nothing in the proposed Final Judgment would force Apple 
or B&N to exercise discounting authority--they are free to carry out 
their own businesses exactly as before. What they may not do is 
continue to rely on a conspiracy to restrain their competitors.
3. The Proposed Final Judgment Will Help To Restore Competition, Not 
End It
    Apple also insists that the proposed Final Judgment ``puts Apple, 
and every other eBook distributor [except Amazon], in peril.'' Apple at 
7. This is so, Apple claims repeatedly, because the proposed Final 
Judgment will ``allow an eBook agent a nearly unfettered ability to 
discount a Settling Defendant's title.'' Id. at 2, 6. That is, Apple 
objects that the goal of the conspiracy--to raise e-book prices by 
wresting discount authority from retailers--will be undone by the 
proposed Final Judgment, at least with respect to Settling Defendants. 
Under such conditions, Apple worries, some ``retailers * * * may be 
unable to continue to do business,'' id. at 2, ``dramatic and 
irreversible'' consequences may limit innovation and diversity, id. at 
3, and Amazon will be able to ``charge monopoly prices into 
perpetuity.'' Id. at 4.
    First, Apple is not entitled to retain the benefits of any 
collusive agreement, much less one it participated in directly. As has 
been noted throughout, it is black letter law that that the Sherman Act 
was ``enacted for `the protection of competition, not competitors.''' 
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 n.14 
(1984) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 
477, 488 (1977) (quoting Brown Shoe Co., 370 U.S. at 320)). Indeed, the 
Supreme Court has expressly recognized that the type of ``robust 
competition'' protected by the Sherman Act could well expose individual 
competitors to commercial harm. Copperweld Corp., 467 U.S. at 767-68. 
If the proposed Final Judgment were expected to lead to a more intense 
competitive environment, that would be cause to embrace the proposed 
Final Judgment, not reject it. The same competitive forces that would 
pressure retailers would benefit consumers.
    Further, the Tunney Act is not designed to be a weapon that is 
wielded by competitors seeking to forestall competition. The Act 
directs the Court to consider the impact of a proposed decree not on 
the participants in the anticompetitive conduct, but on those 
``alleging specific injury from the violations set forth in the 
complaint.'' 15 U.S.C. 16(e)(1)(B); see also Int'l Bus. Machines Corp., 
163 F.3d at 740-42 (finding termination of a decree was in ``the public 
interest,'' despite competitor objections, because ``[t]he purpose of 
the [Sherman] Act is not to protect businesses from the working of the 
market; it is to protect the public from the failure of the market.'' 
(quoting Spectrum Sports, Inc., 506 U.S. at 458). As neither the 
antitrust laws nor the Tunney Act purport to remedy the loss of ill-
gotten gains, Apple's complaints need not be considered by the Court.
    Second, Apple's claim, that the settlements will result in imminent 
retail exitings and lessened industry innovation, is not supported by 
any evidence. In fact, what the evidence does show, is to the contrary. 
As noted above, since the proposed Final Judgment was filed, Microsoft 
has made a significant investment in the industry. See Section II, 
footnote 6, supra. The investment is likely a boon to Apple's largest 
brick-and-mortar retail competitor, B&N. See Section V.B.1.b, footnote 
18, supra. Google, too, rather than retiring from the e-book field, 
recently has announced a new investment in a tablet computer intended 
to promote its own e-book sales, through GooglePlay. See Section II, 
footnote 7, supra.
    Third, like other retailers with an interest in high consumer 
prices and protected distributor margins, Apple makes the argument that 
the ability to compete on price ``will enable Amazon to charge monopoly 
prices into perpetuity.'' Apple at 4. That argument assumes, without 
support, that Amazon could or would exercise such market power, even in 
the face of significant share erosion, which was already significant 
prior to Apple's entry. Further, the entire conspiracy alleged here 
was, for Publisher Defendants, about increasing the retail price of e-
books. As the Complaint alleges repeatedly, the shared goal of 
Publisher Defendants was to ``act collectively to force up Amazon's 
retail prices.'' Compl. ] 37. Publisher Defendants would have welcomed 
monopoly-like pricing with open arms; what they feared was the exact 
opposite--that the Amazon-led $9.99 price would stick, to the benefit 
of consumers and the perceived detriment of Publisher Defendants.\36\ 
See also Section V.A.3, supra. The proposed Final Judgment will, of 
course, do nothing to undermine existing law prohibiting exclusionary 
conduct.
---------------------------------------------------------------------------

    \36\ As Steve Jobs said, ``the customer pays a little more, but 
that's what you want anyway.'' Comp. ] 6.
---------------------------------------------------------------------------

4. Apple Misstates the Standard of Review Under the Tunney Act
    Apple also argues that the proposed Final Judgment ``ignores an 
important rule of law'' that a remedy must be ``directly related to the 
violations alleged in the Complaint.'' Apple at 6 (citing SBC 
Communications). But SBC Communications says no such thing. Instead, 
that court made clear that ``[t]he government need not prove that the 
settlements will perfectly remedy the alleged antitrust harms; it need 
only provide a factual basis for concluding that the settlements are 
reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 489 
F. Supp. 2d at 17. Furthermore, a court ``may not require that the 
remedies perfectly match the alleged violations.'' Instead, the court 
must defer ``to the government's predictions about the efficacy of its 
remedies.'' Id. Indeed, Apple's interpretation would suggest that a 
consent decree must be more narrowly tailored than judgments entered 
after trial, which often include much broader relief. See, e.g., U.S. 
Gypsum Co., 340 U.S. at 89 (holding

[[Page 44287]]

that relief may ``range broadly through practices connected with acts 
actually found to be illegal'').
    Apple's reliance on SBC Communications also is misplaced given that 
the court in that case entered the government's Proposed Final 
Judgment, notwithstanding arguments by amici that purchasers of the 
divested telecommunications assets were unlikely to fully replace the 
competition lost in the merger of two large telecommunications 
companies. The court acknowledged the purchasers' shortcomings had the 
potential to ``reduce the effectiveness of the proposed settlements,'' 
but concluded that ``the government ha[d] presented a reasonable basis 
for concluding that the proposed settlements * * * are reasonably 
adequate, and thus within the reaches of the public interest.'' SBC 
Commc'ns, 489 F. Supp. 2d at 21. Although the United States believes 
that the settlement reached in SBC Communications fully restored 
competition in the alleged relevant market, the case confirms that the 
United States is obligated only to show that the settlement was 
reasonable and within the reaches of the public interest.
5. Apple's Suggested Changes to the Proposed Final Judgment Are Self-
Serving and Contrary to the Public Interest
    Contrary to Apple's assertions, the terms of the proposed Final 
Judgment are not novel, and the provisions are closely tailored to 
address the harm alleged in the Complaint. See Section V.A.5. Apple's 
requested modifications to the proposed Final Judgment, on the other 
hand, would serve only to undermine the proposed Final Judgment's 
effectiveness, reducing the value of the settlement to consumers.
    Apple proposes that Section VI.B be altered to ``allow retailers to 
discount from their commissions on a per unit and not an aggregate 
basis.'' Apple at 3. That suggested modification, however, is a naked 
attempt by Apple to have its competitors' ability to compete on price 
constrained--to take away the ``nearly unfettered ability to 
discount,'' id. at 2, 6, that a retailer who desires to compete would 
embrace but Apple fears. For example, Apple's modification would 
effectively prohibit retail innovations that benefit consumers, such as 
loss leading, ``buy one get one free,'' or subscription services. Apple 
has provided no basis to conclude that a ``per unit'' constraint would 
better serve the public interest than an aggregate constraint, and its 
enforceability argument is pure makeweight. Section VI.B, which is 
permitted not required conduct, contemplates voluntary agreements 
between Settling Defendants and retailers, and permits Settling 
Defendants to negotiate their own enforcement mechanisms with 
retailers, including Apple. That these sophisticated parties are 
capable of designing terms to enforce contractual obligations is 
demonstrated by the Apple Agency Agreements themselves, which provide 
an audit mechanism to verify proceeds due to the publisher on e-book 
sales.\37\
---------------------------------------------------------------------------

    \37\ ``Publisher, at its expense, may audit directly applicable 
records of Apple . * * * [No] audit shall be conducted for a period 
spanning less than six (6) months.'' EBOOK AGENCY DISTRIBUTION 
AGREEMENT, Sec.  12(b), APPLETX00018481 at -18488.
---------------------------------------------------------------------------

VI. Conclusion

    The issues raised in the public comments were among the many 
considered by the United States when it evaluated the sufficiency of 
the proposed remedy. The United States has determined that the proposed 
Final Judgment, as drafted, provides an effective and appropriate 
remedy for the antitrust violations alleged in the Complaint and is 
therefore in the public interest. The United States will move this 
Court to enter the proposed Final Judgment after the comments are 
published on the Department's Web site and this Response to Comments is 
published in the Federal Register.

    Dated: July 23, 2012.

    Respectfully submitted,

Mark W. Ryan,
Stephanie A. Fleming,
Lawrence E. Buterman,
Laura B. Collins,
Attorneys for the United States, United States Department of 
Justice, Antitrust Division, 450 Fifth Street NW., Suite 4000, 
Washington, DC 20530, (202) 532-4753, Mark.W.Ryan@usdoj.gov.

Certificate of Service

    I, Stephanie A. Fleming, hereby certify that on July 23, 2012, I 
caused a copy of the United States' Response to Public Comments to be 
served by the Electronic Case Filing System, which included the 
individuals listed below. Copies of all Public Comments, collected as 
digital files in a compact disc entitled ``Exhibit A,'' have also been 
sent via overnight delivery to the same individuals.

For Apple:

Daniel S. Floyd, Gibson, Dunn & Crutcher LLP, 333 S. Grand Avenue, 
Suite 4600, Los Angeles, CA 90070, (213) 229-7148, 
dfloyd@gibsondunn.com.

For Macmillan and Verlagsgruppe Georg Von Holtzbrinck GMBH:

Joel M. Mitnick, Sidley Austin LLP, 787 Seventh Avenue, New York, NY 
10019, (212) 839-5300, jmitnick@sidley.com.

For Penguin U.S.A. and the Penguin Group:

Daniel F. McInnis, Akin Gump Strauss Hauer & Feld, LLP, 1333 New 
Hampshire Avenue NW., Washington, DC 20036, (202) 887-4000, 
dmcinnis@akingump.com.

For Hachette:

Walter B. Stuart, IV, Freshfields Bruckhaus Deringer LLP, 601 Lexington 
Avenue, New York, NY 10022, (212) 277-4000, 
walter.stuart@freshfields.com.

For HarperCollins:

Paul Madison Eckles, Skadden, Arps, Slate, Meagher & Flom, Four Times 
Square, 42nd Floor, New York, NY 10036, (212) 735-2578, 
pmeckles@skadden.com.

For Simon & Schuster:

Yehudah Lev Buchweitz, Weil, Gotshal & Manges LLP (NYC), 767 Fifth 
Avenue, 25th FL, New York, NY 10153, (212) 310-8000 x8256, 
yehudah.buchweitz@weil.com.

    Additionally, courtesy copies of the Response to Public Comments, 
sent electronically, and Exhibit A, sent via overnight mail, have been 
provided to the following:

For the State of Connecticut:

W. Joseph Nielsen, Assistant Attorney General, Antitrust Division, 
Office of the Attorney General, 55 Elm Street, Hartford, CT 06106, 
(860) 808-5040, Joseph.Nielsen@ct.gov.

For the Private Plaintiffs:

Jeff D. Friedman, Hagens Berman, 715 Hearst Ave., Suite 202, Berkeley, 
CA 94710, (510) 725-3000, jefff@hbsslaw.com.

For the State of Texas:

Gabriel R. Gervey, Assistant Attorney General, Antitrust Division, 
Office of the Attorney General of Texas, 300 W. 15th Street, Austin, 
Texas 78701, (512) 463-1262, gabriel.gervey@oag.state.tx.us.

Stephanie A. Fleming, Counsel for the United States, Antitrust 
Division, 450 Fifth Street NW., Suite 8700, Washington, DC 20530, (202) 
514-9228, stephanie.fleming@usdoj.gov.

[FR Doc. 2012-18313 Filed 7-26-12; 8:45 am]
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