April 2012

The Justice Department's legal pursuit of Apple for alleged e-book price fixing stretches the boundaries of antitrust law and is likely to end in defeat.

That's what happened in 1982, when an embarrassed Justice Department admitted its antitrust lawsuit against IBM was "without merit" and abandoned the case. And in 2001, a federal appeals court nixed the Justice Department's ambitious attempt to rewrite antitrust law by carving Microsoft into two separate companies. "It's a harder case against Apple than the publishers," says Geoffrey Manne, who teaches antitrust law at the Lewis and Clark Law School in Oregon and runs the International Center for Law and Economics. One reason lies in the Justice Department's 36-page complaint, which recounts how publishers met over breakfast in a London hotel and dinners at Manhattan's posh Picholine restaurant, which boasts a "Best of Award of Excellence" from Wine Spectator magazine. The key point is that Apple wasn't present.

The Department of Justice "has a far better case against the publishers than Apple," says Dominick Armentano, professor emeritus of economics at the University of Hartford and author of Antitrust and Monopoly who's now affiliated with the Independent Institute in Oakland (CA). "If the CEOs of the various publishers got together in hotel rooms to discuss prices, they are sunk" and might as well settle, he says. Richard Epstein, the prolific legal scholar and professor of law at New York University, goes further. Epstein argues in an essay published yesterday that there are "difficulties" with the Justice Department's case against publishers as well: "It will take some time to hear the whole story, but the betting here is that this lawsuit is a mistake."

During the Great Depression, publishers faced off against another seemingly invincible retail juggernaut: Macy's Department Stores.

Throughout the Great Depression, department stores like Macy's sold books at a steep discount. The best-selling Gone with the Wind became an early casualty of the 1930s price wars. Department stores priced the new novel at 89 cents (equivalent to $14 in 2011), hoping to lure customers into stores — a loss leader strategy that feels almost like a precursor to Amazon's play. In mid-1934, publishers and booksellers lobbied for federal protection from this kind of predatory pricing. During the early days of President Franklin Roosevelt's administration, the federal government enforced a set of retail codes to prevent predatory pricing and other Depression-era trade practices.

The Supreme Court later declared the codes unconstitutional, but publishers fought in courts around the country to keep fair price legislation alive throughout the Great Depression. Thanks to the legislation, Macmillan dramatically raised the price of Gone with the Wind to $3 (equivalent to $47 in 2011). Macy's promptly returned 36,000 copies of the novel to the publisher, hoping to prove that this solution would scuttle sales for the new book. The publisher told the New York Times "we believe ... with the price of Gone with the Wind stabilized, its sale will go right on." Both the publishing industry and Gone with the Wind kept sailing, thanks in part to jury-rigged fixes nobody ever imagined would endure. No matter what the outcome of this mountain of federal and state litigation, the agency model, in its present form, is dead. Within the next month, Amazon, Barnes & Noble, Apple and other e-book retailers will undoubtedly mount a fierce price war for control of this new market. Publishers will bemoan the loss of the tool for preventing predatory pricing, brick-and-mortar booksellers will struggle to compete in the digital marketplace, and cash-strapped book buyers will cheer the competitive prices.

Appearing on C-SPAN’s The Communicators, National Telecommunications & Information Administration chief Larry Strickling says that some government users are going to have to remain in the 95 MHz of spectrum NTIA has identified for use by commercial wireless.

"We just don't have places to move the federal agencies to any longer," he said, citing the increasing government demands for spectrum as the reason for emphasizing spectrum sharing. He pointed out that federal use is intermittent and sometimes does not involve the entire country. Strickling said that given the opportunity to put 95 MHz of spectrum on the table, it would not have met the administration's goal of trying to free up 500 MHz had it just focused on the lower 25 MHz. The wireless industry and the FCC would probably have preferred it start with that 25 MHz since it is adjacent to a block of available FCC-overseen spectrum it could have been paired with and gotten to market relatively quickly. Strickling said going the 25 MHz route would have been an "irresponsible way to proceed" with federal agencies talking about being willing to accommodate commercial users in all 95 MHz and a goal of 500 MHz. Strickling is predicting that spectrum freed up under the NTIA proposal would be available within five years.

[Commentary] It’s hard to be a web user these days, especially since the government has gotten so interested in what we’re doing online. Bills and proposed regulations that target web activity and user data are popping up all the time, and it’s hard to keep track of what any of this actually means. It gets even worse when we can’t figure out who — if anyone — is actually on our side, and when compromise has to take the place of all-out war. Occasionally, things are easy, like SOPA. It was a ridiculous bill for the myriad reasons cited between its rise to prominence in October 2011 and its eventual shelving in January 2012. It would have led to absurd lawsuits and would have proved to be an incredible burden for many web service providers. But that bill clearly targeted web users’ favorite web sites and the users themselves — if you were in one of those two camps, it was easy to pick a side. I admit I have been somewhat taken aback, however, by the outrage over the Cyber Intelligence Sharing and Protection Act, or CISPA — namely, the allegations that it’s little more than SOPA 2.0. The law isn’t always black and white, and reacting to the words intellectual property within a bill with crazy arm-waving and chants of SOPA 2.0 probably aren’t too effective. We actually need to consider what proposed laws say, how they relate to existing legal doctrine and what are the interests of the parties involved, and then react accordingly.