American Booksellers Association CEO asks DoJ to punish collusion but allow agency pricing

American Booksellers Association CEO Oren Teicher has posted the text of his letter to the Justice Department commenting on the proposed antitrust settlement with the three Agency Five publishers who agreed to settle. As with the recent Barnes & Noble filing, Teicher concentrates on the harm that such a settlement would allow Amazon to do to its competition—in this case the independent bookstores that make up the ABA.

Teicher points out that agency pricing is the only thing that allowed independent bookstores selling e-books through the ABA’s IndieCommerce subsidiary (currently using Google Books’s reseller program, but changing to another provider by next year as the program shuts down) to be able to compete with Amazon. Without agency pricing keeping the prices exactly the same everywhere, Amazon could have undersold them on e-books just as badly as it does on print books—if not more so, since Amazon sold so many e-books below wholesale price as loss leaders. He trots out the same figures about Amazon’s market share shrinking and average e-book price falling that so many others have brought up already.

He also points out that Amazon is “a classic free-rider” who capitalizes on the investments of others, using brick-and-mortar bookstores as “showrooms” where consumers can browse to find what they want and then turn around and order it on-line, where it is not only cheaper but frequently comes without collection of sales tax as well. It also “has demonstrated a mercurial attitude toward its business partners with devastating results for those partners given Amazon’s market share” (as exemplified in its disputes with IPG and major publishers over contract terms, among other incidents).

Given that free-riding appears to be a significant aspect of the Amazon business strategy, it would be entirely appropriate for publishers to individually decide to take control of their e-book pricing to ensure that, as the industry moves more toward the e-book world, the bricks-and-mortar showrooms of the publishers’ products continued to survive and thrive. In the final consent decree, publishers should not be barred from individually choosing to adopt this legal and prudent business strategy.

Teicher complains that barring the publishers from using otherwise-perfectly-legal agency pricing for two years would also effectively penalize IndieCommerce by voiding the agency pricing agreements it negotiated with publishers months after the forced adoption by Amazon. Whether or not the original agreements brokered with Amazon involved collusion, he insists, these agreements did not, but the settlement consent decree would wipe them out just as it would Amazon’s.

Teicher also points out that the Department of Justice didn’t even ask for this type of measure as a remedy in the complaints it filed, and indeed could not have obtained such a measure as punishment even if the court had ruled its way.

If the publishers had together agreed that not one of them would offer an Agency Model to booksellers, that would clearly be illegal, and DOJ might today be pursuing them for so doing. But the proposed consent decree would have the same effect as to the three publishers that are required to sign it. They will together be jointly agreeing, with DOJ’s imprimatur, not to employ for two years a pricing strategy that would ensure broad distribution of e-books among diverse retailers, including indie bookstores. The consequences of this joint conduct with respect to key business terms are not lessened because DOJ is directing it. Indeed, the likely result is to drive the lion’s share of the e-book business back to a single online retailer. By dictating disadvantageous business terms, DOJ’s proposed consent decree will radically restructure the e-book distribution system. That cannot be in the public interest, and should not be approved and finalized by the Court.

All in all, the arguments aren’t too surprising, given their source. Indeed, in arguing that collusion should be punished without forbidding publishers from using an otherwise legal pricing strategy, the letter is quite similar to fellow Amazon competitor Barnes & Noble’s recent filing.

One thing that is a bit surprising, not to mention more than a little puzzling, is a gaffe Teicher makes in his description of the Kindle. Early in the letter, he says that the Google-provided e-books sold by IndieCommerce “can be read on every device except the Amazon Kindle, which is a closed, proprietary system.” Later, when discussing vendor lock-in issues, he writes (emphasis mine):

The situation is even less competitive for customers who read e-books on an Amazon Kindle device, as opposed to as an application for a multi-use mobile device, since the Kindle device is completely locked down and does not allow for the reading of e-books purchased from other vendors. (Virtually all other e-book reading devices allow the use of content purchased from other vendors.)

I don’t know what Kindle he’s been looking at, but DRM-free MobiPocket format e-books from anywhere can be loaded onto the Kindle just as easily as DRM-locked Kindle e-books can. You can copy them over USB, or even email them directly into your Kindle. (Baen has specific instructions for doing this with its own e-books, which you can find by clicking an “Email book to my Kindle” link on any e-book download page.)

He could be talking about loading DRM-locked e-books from other vendors, of course, but you can’t exactly do that with Nook, Kobo, Sony, or any other DRM-using e-reader either. Any e-reader that uses DRM is its own “closed, proprietary system”—a walled garden for DRM-locked books—which is why publishers like Tor are moving to offer e-books DRM-free.

Or is it just that all the e-book readers that use EPUB are compatible with Adobe’s Adept DRM, which means any e-bookstore that sells in Adept DRM is cross-compatible with all of them but not Kindle? (Is that right?) I suppose if you look at it that way you can say the Kindle “does not allow for the reading of e-books purchased from other vendors,” but you have to insert a “DRM-locked” between “of” and “e-books” for that statement to be correct.

And even then, I don’t think you can read a Barnes & Noble e-book on anything except a Barnes & Noble device or app since B&N’s e-books use Fictionwise’s eReader DRM, not Adobe’s, even if their readers are compatible with Adobe’s too (are they?). So in the end, I’m not sure what he meant, but I am sure it’s not true the way he phrased it.

At any rate, it will be interesting to see what finally comes of this flood of letters the Department of Justice has been receiving, many of them complaining of Amazon as the real anti-competitive danger. Whatever happens, nobody can say the bookselling industry has been shy about making its feelings known.

(Found via PaidContent.)