08 March 2012

Brontësaurus Regina

In George Takei's words, "Oh my!".

* * *

It appears that the Justice Department's Antitrust Division has removed its head from its rectal orifice and invited Apple, MacMillan, HarperCollins, Simon & Schuster, Hachette, and Penguin to assist the ministry with certain inquiries regarding e-book pricing. I wonder if I've ever suggested anything like that before?

I'm shocked — shocked, I say — to find arguably unlawful restraint of trade among long-term monopolists/monopsonists; the irony of linking to a story published by a unit of one of the targets is entirely intentional. In any event, what follows is a very short, very superficial, and somewhat snarky unpacking of the legal doctrines that will end up being involved in this situation. The ultimate bottom line is that there is no contenxt without contexnt — a principle that serves as well for law and current affairs as it does for literature. That is, the "strong form" of the intentional fallacy and the New Criticism — not to mention legal textualism — is wrong because it is incomplete, although it provides an important and critical starting point for analysis. In chemistry terms, the context of the lab conditions matters as much as the content of the lab notebook; that 69.2°C boiling point of the unknown sample means something different in Mexico City in January than it does in the Mojave Desert in July, if only due to laboratory temperature and atmospheric pressure (not to mention thermometer calibration).

First, we need to use the correct language; if we do not use the correct language, we're not going to have any idea whatsoever what the actual context is, nor what the various parties are really talking about in their misleading press releases. This particular circumstance involves not one, but five, fundamental misuses of technical terms... all of which are misleading and tend to hide any potential misconduct. In alphabetical order, they are:

  • Agency model: As I've remarked at length before, the so-called "agency model" is actually a resale price maintenance agreement ("RPMA") and has nothing whatsoever to do with the legal relationship called an "agency." In particular, because Apple (or Amazon, or whoever) has the unrestricted right to lower its own price to match a lower price offered elsewhere, it is not a "mere agent" for the publisher (the "principal") regarding the e-books. Further, because the transaction relates not to a sale of wholly owned goods, but to transfer of copies of licensed intellectual property — a distinction that publishers cannot escape under the Berne Convention and Copyright Act of 1976, no matter how deceptive their rhetoric — the publishers are not really principals; they are agents themselves with a duty of loyalty to the authors that they are explicitly disdaining. That is, the publishers are themselves arguably unfaithful agents.
  • Antitrust is not just about price. It is about consumer/market choice. Thus, if consumer choice is lessened — whether that is the ability to choose a different price or a different product — there is an antitrust concern. Antitrust is one of the three partially overlapping areas of unfair competition (the other two being deceptive trade practices and intellectual property infringement), and concerns the use of nontransactional power to influence market structure and restrict consumer choice. Of course, sometimes the "consumers" can turn out to be "businesses," instead of "consumers" as defined in various consumer-protection statutes like the Truth in Lending Act. For example, a local monopoly in automobile parts made available to "authorized service centers" would raise antitrust issues, even though the "market" would include businesses (the service centers) as the "consumers" for antitrust analysis.
  • e-Book Sales, for antitrust purposes, doesn't quite mean what people might expect it to. In this particular instance, it means sales made freely to consumers. It does not include, for example, copies of The Handmaid's Tale sold to students in college literature classes, because that is not a freely chosen transaction for antitrust purposes; it is, instead, a forced sale. Publicly available numbers simply are not going to make this clear... especially when people are relying on indirect figures like "sales ranks".
  • Market in antitrust law is not the abstraction worshipped by neoclassical economists, but a highly specific definition for each case. This is an area that the Department of Justice has ordinarily gotten wrong for about three decades now — ever since Ed Meese drove the most-competent (not to mention most-enthusiastic) career attorneys in the DoJ's Antitrust Division out. The experience deficit since then, particularly compared to BigLaw private practice, has been astoundingly obvious. In any event, the relevant market here would include only trade fiction, trade general nonfiction, and other e-book categories parallel to those for which the RPMA has been imposed. Thus, it will exclude the huge textbook, educational, how-to, and professional/technical/scientific segments. However, publicly reported figures will include those areas, making discerning how much of the market is influenced by the RPMA extremely difficult to determine without diving deep into accounting figures that will be guarded as trade secrets by both the publishers and the vendor(s). (Amazon even makes that an explicit part of its contract with publishers and distributors!)

    The key point is that in live litigation over live antitrust disputes, market definition is largely outcome-determinative. If the defendants succeed in setting the market definition, or influencing the court sufficiently close to their preferred market definition, the defendants win; if the plaintiffs succeed in setting the market definition, or influencing the court sufficiently close to their preferred market definition, they usually win. In this instance, we're going to see a huge dispute over exactly what counts as the relevant market: Is it all book sales? All e-book sales? All trade fiction and trade general nonfiction e-book sales? All trade fiction and trade general nonfiction e-book sales from commercial publishers? Something else? It's too damned early to tell, or the guess; my belief is that the last of these is the closest to an objectively accurate and defensible position, but I haven't seen a very wide selection of the evidence yet, either.

    Then, too, the market definition also has a huge influence on the remedy available if the plaintiffs do prevail, because the remedy must be tailored to restore competition not in general but in that market.

  • Monopolistic is misleading here because we're also dealing with the monopsony problem. Antitrust is about ensuring proper operation of markets as a whole. A monopoly is judged purely from the perspective of

    {open set of buyers} ∪ {limited set of sellers}

    which usually means competition from the perspective of the consumer or buyer only. Indeed, if one does all of the math behind the purportedly "objective" DOJ/FTC merger guidelines and expands all of the terms, you'll see that doing anything else risks a number of divide-by-zero errors. In this instance, "anything else" is the monopsony perspective of

    {limited set of buyers } ∪ {open set of sellers}

    which describes the "market" from the author's perspective: Lots and lots of actual/potential authors, very few publishers for the particular works in question. And the license-versus-sale issue just makes this problem that much more fun... especially when one realizes that copyright is, by its nature, a monopoly granted by the government!

So, then, where does this leave us? Well, I've blathered on long enough for now, so I'll return tomorrow... How's that for a cliffhanger?