Cartoon Shows DOJ Mistake on Apple/Publisher Antitrust Charge

Playing on the adage that a picture can be worth a thousand words, Bob Kohn, an expert in music licensing law and chairman of RoyaltyShare Inc., filed a brief with a U.S. District Court in the form of a five page cartoon (see below). According to Bloomberg, the brief was filed in the DOJ's case accusing Apple and five publishers of colluding to raise prices on antitrust grounds in the ebook market.

Court Cartoon

Three Frames from Cartoon Brief

Mr. Kohn had petitioned Judge Denise Kote for permission to file a friend-of-the-court brief opposing the DOJ's case. He proposed a 25 page brief, but when Judge Kote limited him to five pages, he decided to use those five pages to illustrate, literally, his argument on why the DOJ got it wrong in going after Apple and the publishers.

The case began with Apple’s deal with five of the big six publishers in the U.S. to launch iBooks on the iPad. With that deal, Apple moved the entire ebook publishing industry to an agency model where publishers set the price and the retailers, including Apple, took 30 percent off the top.

Apple included a clause that said publishers weren’t allowed to sell their books for less elsewhere, and those publishers used that clause to force Amazon to renegotiate existing agreements. The publishers were keen to do this because Amazon was dumping Kindle versions of best sellers in order to gain share for its Kindle platform.

The publishing industry was worried about the effect this was having on pricing in general and the perceived value of books, especially hard backs, which retail at a far higher price than ebook versions. They had been unable to stop Amazon’s practices, however, until Apple armed them with the tools to do so.

The DOJ took exception to this, accusing Apple and the publishers of colluding to raise prices. Senator Charles Schumer of New York has criticized the case, urging the DOJ to drop it. The DOJ has not done so, however, and three of those publishers have since settled with both the DOJ and a related case from several states' attorneys general.

Two publishers and Apple have vowed to fight the case, and the resulting trial is when Mr. Kohn's cartoon enters the picture. In that cartoon he argues that the DOJ is in error when it said that low prices are the goal of antitrust regulations. Instead, he explained, efficient pricing is the goal.

The cartoon also points out that Amazon's prior practice of selling ebooks below marginal costs (dumping them for less than it paid publishers) is "presumed illegal" under established precedent. He also said that the DOJ's own guidelines allow for horizontal price fixing if it will, "create efficiencies in the operation of a market."

In the case of Apple's agency model deals with publishers, the horizontal price fixing that resulted countervailed Amazon's monopoly power and predatory pricing.

You can see the full cartoon below, courtesy of ScribD.

Cartoon Brief