[Federal Register Volume 64, Number 86 (Wednesday, May 5, 1999)]
[Notices]
[Pages 24173-24178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11269]
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DEPARTMENT OF JUSTICE
Antitrust Division
[Civil No. 1:98CV02836]
Public Comments and Response on Proposed Final Judgment, United
States v. Pearson plc, Pearson Inc. and Viacom International Inc.
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States of America hereby publishes below the
comments received on the proposed Final Judgment in United States v.
Pearson, plc, Pearson Inc. and Viacom International Inc., Civil Action
No. 1:98CV02836, filed in the United States District Court for the
District of Columbia, together with the United States' response to the
comments.
Copies of the comments and response are available for inspection in
Room 215 of the U.S. Department of Justice, Antitrust Division, 325 7th
Street, NW, Washington, DC 20530, telephone: (202) 514-2481, and at the
Office of the Clerk of the United States District Court for the
District of Columbia, United States Courthouse, Third Street and
Constitution Avenue, NW, Washington, DC 20001. Copies of any of these
materials may be obtained upon request and payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.
Civil Action No. 1:98CV02836
Judge: James Robertson
Filed: April 22, 1999
PLAINTIFF'S RESPONSE TO PUBLIC COMMENTS
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (1997) (``Tunney Act'') the United
States hereby responds to the four public comments received regarding
the proposed Final judgment in this case.
I. Background
On November 23, 1998, the United States filed the Complaint in this
matter alleging that the acquisition by Pearson plc and its wholly
owned subsidiary, Pearson Inc. (collectively ``Pearson'') of certain
publishing businesses of Viacom International Inc. (``Viacom'') would
violate Section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint
alleges that Pearson and Viacom, two of the nation's largest publishers
of textbooks and other educational materials, compete head-to-head in
the development, marketing and sale of comprehensive elementary school
science programs and in the development, marketing and sale of
textbooks used in thirty-two college
[[Page 24174]]
courses. The Complaint also alleges that the defendants are two of only
a few firms that compete in these markets and that they account for a
significant share of all sales. Pearson's acquisition of Viacom's
publishing businesses was therefore likely to reduce competition and to
result in higher prices for these comprehensive science programs and
for college textbooks and other educational materials in these courses.
Simultaneous with the filing of the Complaint, the United States
filed a Final Judgment and Stipulation signed by all the parties
allowing for entry of the Final Judgment following compliance with the
Tunney Act. A Competitive Impact Statement (``CIS'') was also filed
with the Court and published in the Federal Register, along with the
proposed Final Judgment, on December 21, 1998 (see 63 FR 70,422).
The proposed Final Judgment permits Pearson to acquire the
publishing businesses from Viacom, which it did on November 27, 1998,
but requires Pearson to divest itself of one of its two elementary
school science textbook programs and fifty-five college textbooks
serving thirty-two college course markets. On December 23, 1998,
Pearson sold Viacom's elementary science program to Houghton Mifflin
Company.
The sixty-day period for public comments expired on February 19,
1999. The United States has received four comments, copies of which are
attached, from the following individuals: (1) Professor Gary Musser;
(2) Professor Frederic Martini; (3) Mr. Clayton Jones; and (4)
Professors Vogeli, Ginsburg and Greene. The United States has carefully
considered the views expressed in these comments, but nothing in these
comments has altered the United States' conclusion that the proposed
Final Judgment is in the public interest. Once those comments and this
Response are published in the Federal Register, the United States will
have fully complied with the Tunney Act and will then file a motion for
entry of the proposed Final Judgment.
II. Response to Public Comments
Two of the comments received by the United States were from college
textbook authors who raised concerns about the divestitures required by
the decree. Dr. Gary L. Musser, the co-author of a Prentice Hall
textbook to be divested, wrote that he is concerned that the
divestiture will have a disruptive and harmful effect on the sales of
that book as well as on another of his textbooks that is not to be
divested. Both books are in the process of revision and Dr. Musser
believes that they benefit from being marketed together. He believes
that current plans for revisions, plans to supplement his to-be-
divested book with a CD/Web package, and the schedules for
republication will be jeopardized if his book is sold to another
publisher at this time. He urges the United States and the Court to
consider revising the decree so as not to require divestiture of his
book.
Dr. Frederic Martini, the author of five textbooks published by
Prentice Hall, none of which is required to be divested under the
Proposed Judgment, also raised concerns about the proposed
divestitures. Dr. Martini believes that the acquisition is likely to
have anticompetitive effects in numerous publishing markets, and
believes that the divestitures will not go far enough to preserve
competition and innovation and will negatively impact authors and the
marketing, sale, and development of their textbooks. Specifically, Dr.
Martini contends that competition among publishers--and, in particular
between Pearson and Viacom--has resulted in product innovation and the
development of ``hi-tech'' electronic educational materials that
supplement college textbooks. He is concerned that the acquisition will
lessen this product innovation and development because the competition
between the Pearson and Viacom titles will be lost; he is also
concerned that the acquisition will raise barriers to entry by small
publishers and reduce opportunities for new textbook authors and new
texts.\1\
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\1\ Dr. Martini states that, for anatomy and physiology--one of
the college textbook courses for which divestiture of texts is
required--Pearson will account for fifty to sixty percent of all
textbook sales after acquisition. Based on our investigation, which
included review of sales data collected by an industry reporting
service, we believe that, after the proposed divestiture Pearson
makes, its share of this market will be no more than it was prior to
its acquisition of Viacom's titles--somewhat less than fifty
percent.
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Dr. Martini recommends revising the decree so that Pearson may
retain all of the Viacom titles but must hold them separate from the
rest of their operations., He would specifically prohibit the ``merging
of lists and the coalescing of related divisions, such as acquisitions,
editorial, marketing, sales, and technology support for the imprint
titles.'' He hopes that that would allow the two companies to
``maintain their distinctive character'' and continue to develop
competitive technologies. He concedes, however, that this might limit
Pearson's ability to maximize economies of scale.
The United States believes that the divestiture of all the
designated titles is essential to preserve competition in the markets
alleged in the Complaint. The goal of the Final Judgment is to replace
the competition eliminated as a result of the acquisition with one or
more new viable competitors that will be capable of being in the market
over the long term. To accomplish that, the proposed Final Judgment
contains numerous requirements to ensure that the acquirer or acquirers
of these programs and textbook titles continue as viable and effective
competitors. These include provisions requiring that the acquirer have
the opportunity to employ certain personnel, and provisions requiring
divestiture of all tangible and intangible assets that make up each of
the products. The United States must also be satisfied that the
acquiring parties have the ability and intention to publish and market
the divested products as viable, ongoing businesses.
Although the United States recognizes that divestiture of these
college textbooks may have some short-term effect on their development
and marketing, the proposed decree includes provisions designed to
minimize any disruption. First, the proposed Judgment requires prompt
divestitures (within the later of five months after filing of the
Judgment with the Court or ten days after the expiration of the 60-day
comment period) to minimize the period of uncertainty and discontinuity
of ownership of the divested titles. In addition,until divestiture is
completed, the proposed Judgment requires the defendants to take steps
to preserve the viability and competitiveness of those title; these
include requirements to maintain funding, development, promotional
advertising, marketing, editorial and merchandising support, and to
maintain and increase sales. Moreover, the United States believes that,
absent divestiture of the titles to a new publisher, the authors of
these textbooks would face a far greater risk in the longer term that
their texts and ancillary materials will not be developed, promoted and
revised as effectively as they otherwise would have been because their
new owner now also markets a good number of their most important
competitors.
Dr. Martini's proposal that Pearson be allowed to retain all of the
Viacom titles but more or less permanently be required to operate
various divisions separately and be prevented from merging titles and
imprints will not best preserve competition in the affected college
textbook markets. Divisions owned, managed by and answerable to a
single owner will not maximize competition with each other. A hold-
separate agreement will not alter Pearson's financial incentive and
ability to allocate funding and other resources
[[Page 24175]]
among the various textbooks (or textbook divisions) that it will own in
a way to maximize company profits. It also likely would not alter
Pearson's incentive and ability to raise prices on titles, or reduce
provision of supplemental products and services, in those markets where
it accounted for a large share of sales. Such a permanent hold-separate
order would also be difficult to administer and likely impossible to
enforce. The Court would be hard-pressed to determine whether Pearson
was promoting certain titles as fully and effectively as it would
absent ownership of the other competing titles. Finally, as Dr. Martini
concedes, such an arrangement might limit Pearson's opportunities to
maximize economies of scale and thus raise its costs, which could
result in higher prices to consumers. For these reasons, courts have
long and consistently recognized that maintenance of completely
independent, separately owned competing entities is the effective
remedy for mergers or acquisitions that violate the antitrust laws.
In another comment received by the United States, Clayton E. Jones,
Chief Executive Officer of Jones and Bartlett, an educational
publisher, raised concerns that the decree will not achieve its
intended results because another large competitor is likely to purchase
the divested products. He states that it is necessary to ``take [the]
decree one step further and allow some of the smaller players in the
industry an opportunity to purchase these products'' so that the decree
will achieve its objective of enhancing competition in the industry.
The proposed Final Judgment is designed to ensure that the
purchaser or purchasers of the divested products will be viable and
effective competitors and does not exclude--or give preference to--any
kind of publisher from consideration as a purchaser. A small publisher
is certainly eligible to purchase the divested products so long as the
United States is satisfied that it has the ability and intention to
publish and market the divested products as viable, ongoing businesses.
Moreover, the United States will not approve a proposed divestiture to
a publisher that is already a substantial competitor of the program or
title that it seeks to acquire. Thus, Mr. Jones need not be concerned
that there will be a divestiture to a large competitor that will not
preserve competition in the affected markets.
Finally, the United States received a comment from three college
professors, Drs. Bruce R. Vogeli, Herbert Ginsburg of Columbia
University and Carole Greenes of Boston University, who stated that,
although they concurred with the proposed divestitures relating to
elementary school science programs, the United States should have also
concluded that the acquisition lessened competition in elementary
school mathematics programs and sought a divestiture of one of these
programs as well. They place particular emphasis on the value that they
believe competition has had in the development of innovative
mathematics textbooks and point to increased concentration among
publishers in this area. They urge the Court to ``require the plaintiff
to revisit the proposed final settlement to show cause why relief
similar to that provided for elementary school science not be required
for elementary school mathematics as well.''
The United States conducted a thorough investigation of the likely
impact of Pearson's proposed acquisition of the Viacom publishing
businesses on numerous possible markets, including the market for the
development, marketing and sale of elementary school mathematics
textbooks. The investigation included the review of thousands of
documents, and information from numerous industry sources, including
teachers, school administrators, authors, professors and publishers.
Based on that investigation, the United States concluded that the
acquisition would lessen competition in violation of Section 7 of the
Clayton Act with respect to elementary school science programs, and the
thirty-two college textbook markets alleged in the Complaint.
In essence, the authors of this comment ask the Court to require
the United States to amend its Complaint to allege an additional
violation of Section 7 of the Clayton Act and to seek additional
relief, or, at least, to inquire into the government's investigation
and require it to explain and justify its analysis and conclusions.
Such judicial review of the government's determination of which conduct
to challenge or which violations to allege in the Complaint is not
contemplated by the Tunney Act. The government's decision not to
challenge particular conduct based on the facts and law before it at a
particular time, like any other decision not to prosecute, ``involves a
complicated balancing of a number of factors which are peculiarly
within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821,
831 (1985). As the United States Court of Appeals for the District of
Columbia recently held, it is not the role of the Court in a Tunney Act
proceeding to go beyond the Complaint ``to evaluate claims that the
government did not make and to inquire as to why they were not made.''
United States v. Microsoft Corp., 56 F.3d 1448, 1459 (D.C. Cir. 1995).
Last year, the United States Court of Appeals for the District of
Columbia stated that courts, in making their public interest
determination:
must examine the decree in light of the violations charged in the
complaint and should withhold approval only if any of the terms
appear ambiguous, if the enforcement mechanism is inadequate, if
third parties will be positively injured, or if the decree otherwise
makes ``a mockery of judicial power.''
Massachusetts Sch. of Law at Andover, Inc. v. United States, 118 F.3d
776, 783 (D.C. Cir. 1997), quoting United States v. Microsoft Corp., 56
F.3d 1448, 1462 (D.C. Cir. 1995).
III. Conclusion
After careful consideration of these public comments, the United
States has concluded that entry of the proposed Final Judgment will
provide an effective and appropriate remedy for the antitrust
violations alleged in the Complaint, and is therefore in the public
interest. When those comments and this response are published in the
Federal Register, the United States will move the Court to enter the
proposed Final Judgment.
Dated: April 22, 1999.
Respectfully submitted,
John W. Poole (DC Bar #56944)
Joyce L. Bartoo (DC Bar #359264)
David C. Kully (DC Bar #448763)
Ahmed E. Taha,
Attorneys for the United States, Antitrust Division, U.S. Department of
Justice, 325 Seventh Street, NW., Suite 300, Washington, DC 20530,
(202) 616-5943.
Attachment 1
To: Ms. M. J. Moltenbrey,
Chief Civil Taskforce, Anti-Trust Division, United States Department
of Justice
Re: Forced sale of my book from Prentice-Hall
I am a co-author of two books currently published by Prentice-
Hall--Mathematics for Elementary Teachers and Mathematics in Life,
Society, and the World. A couple of months ago, I was notified by
Prentice-Hall that the first book had to be sold to allow the
purchase of Simon-Schuster by Pearson. I asked if I had any rights
and was told that this was a ruling of the Department of Justice--
that was it! I just found out that I do, in fact, have a chance to
comment--perhaps to object and obtain a reversal in the ruling.
I understanding that there are anti-trust considerations in this
case. However, there are also human and artistic considerations that
you can consider. Let me share these with you.
1. We are currently in the revision process for both of my
books. Prentice-Hall is
[[Page 24176]]
committed to publishing BOTH books and the books are scheduled for
July/August publication dates so our adopters can have the most up-
to-date books for their students this fall. Forcing the sale of
either of these books will jeopardize this schedule. Forcing the
sale of these books as a package may work to our disadvantage since
there is no guarantee that both books will be published by another
publisher.
2. Although my books have separate markets, there is overlap in
the material and instructors who use one of my books are likely to
want to use the other. When marketing, Prentice-Hall is motivated to
make this connection. If my books are split, I and my co-authors
will suffer because this connection will be less obvious.
3. Prentice-Hall is planning to add a CD/Web package to my
Mathematics for Elementary Teachers book. This will be a creative
addition to the marketplace. However, there is no guarantee another
publisher will pick up these extras. In this case, instructors and
their students are the ones who will be disadvantaged.
4. Prentice-Hall and Addison-Wesley both have other competing
books for elementary teachers that they can sell without causing a
disruption as described in items 1 through 3 above.
By allowing my two books to stay with Prentice-Hall, authors,
instructors, and students benefit. I hope that you, the Department
of Justice, and the court can review the uniqueness of this
situation and will work to provide some justice for individuals in
this case.
Sincerely,
Gary L. Musser
Attachment 2
February 6, 1999.
To: M.J. Moltenbrey,
Chief, Civil Task Force, 325 Seventh Street, Suite 300, Washington,
D.C. 20530.
Cc: John Poole
Joel J. Klein
Sen. Daniel Akaka
Rep. Patsy Mink
I am a textbook author whose texts are published by Prentice
Hall. My first book contract was signed in 1981, and I have been
writing either part time or full-time since then. I am a member of
the Authors Guild, the National Writers Union, and the Text and
Academic Authors Association. As college faculty, I am also a member
of the National Association of Biology Teachers, the Society for
College Science Teachers, the American Physiological Society, and
the Human Anatomy and Physiology Society. I am therefore well
acquainted with both the process of textbook authoring and
publishing and the dynamics of our educational system from a faculty
member's perspective. I am writing to express my concerns about the
Final Judgement issued by the Department of Justice permitting the
merger of Pearson Inc. and the educational publishing units of
Viacom. During the evaluation period I provided information to Mr.
Poole and his associates at the DoJ, and I feel that the Judgement
does not adequately address several of the problematic aspects of
this merger.
The Final Judgement as stipulated will not in fact preserve
competition and innovation in the market. Innovation in the textbook
today is occurring most rapidly in the hi-tech electronic areas.
Examples include companion web-sites, course management software,
distance learning systems, computer-based testing programs,
interactive tutorials and simulations, and presentational systems
and software. With very few exceptions, all of these products are
given away free when the corresponding textbook is adopted. The
development, upgrading, and maintenance of these products, which is
very expensive, thus represents a continual drain on corporate
profits. These expenditures can only be justified on the grounds
that they will increase the market share of the associated textbook.
In a market with many competitors, the associated costs are high
enough that each publisher tends to have specialties. Thus with 6
competing publishers, each with viable texts, each would have a full
range of supplements, but each would spend extra money on developing
one particularly innovative product or approach different from (or
better than) what was offered by the competition. These innovations
would of course be focal points for sales and marketing
presentations. Meanwhile, each company would be continually looking
for cost-effectives ways to match or better the strengths of the
competition.
When competitors A and B merge, the new company pools resources
within their disciplines. Let me give you a specific example from
the discipline where I publish (anatomy and physiology). Prentice
Hall had what was generally recognized as the best web-site
technology and the most innovative lecture presentation software
available with their texts. Addison-Wesley/Longman had great
physiology simulations available with their A&P texts. PH was
actively working on physiology simulations that would be competitive
(and out-do) the AWL offerings, while AWL was trying to improve
their web-sites and their presentational software. But now under
Pearson the web-site, presentational software, and simulation
programs will be shared. This has three noteworthy effects on
competitiveness:
1. Prentice Hall can abandon its efforts to develop unique
simulations, and AWL can stop worrying about building a better web-
site or developing new presentational software.
2. The combined companies are able to offer a great web-site,
good presentational software, and great simulations with any of
their texts. It therefore becomes even more difficult for other
publishers to compete in this market. The stakes have now been
raised--a publisher must face the combined threat of both the web-
site, presentational software, and simulations, whereas before it
need only compete with individual offerings. The costs are so high
that small publishers are priced out of the market, and over time
many large publishers have been forced to cut lists to devote money
and personnel to supporting an ever-smaller number of texts. The
Department of Justice could of course say that this sort of thing is
a benefit to consumers, since an instructor can order a good text
and get a great web-site, good presentational software, and terrific
simulations. But that is precisely the argument that Microsoft is
using to oppose the DoJ's antitrust suit. If the DoJ feels that it
is wrong to give that kind of market power to a software company,
why permit it in the textbook market?
3. The authors of the individual texts published by either
company lose their distinctiveness and their marketing momentum.
This drastically reduces competition between PH and AWL titles. It
doesn't matter to Pearson whether a particular sale is credited to
PH or AWL, as long as the sale stays ``in the family.'' But it
matters a great deal to the individual authors involved. I find it
infuriating that projects that I have worked on for years--including
the related software and web-sites--should be turned over to my
competition. My texts were often the ``test cases'' for developing
these products. Once the bugs were ironed out, the product was used
as a template that could benefit other PH texts. All of the time and
effort that I expended in evaluating and enhancing these products is
essentially lost when they are handed to AWL. Furthermore, I worked
with the programmers for over a year developing a CD-ROM interactive
version of my text. Now that shell will also be handed over to my
competition. In essence, my ability to continue to be innovative and
to increase the market share of my texts has been severely
compromised. Further, my interest in ``pushing the envelope'' of
technology is greatly diminished since whatever I do will be
immediately gifted to a major competitor.
Even after the divestiture (see comments below) PH and AWL will
control 50-60% of the A&P market; my text accounts for about 25%.
Prior to the merger I was competing aggressively for 75% of the
market, and gaining market share rapidly against AWL. Now Pearson
will compete for 40-50% of the market, with minimal (or managed)
competition between my text and AWL titles. This is certainly not a
demonstration of ``increased competitiveness.''
Concerning the divestiture of titles. I do not believe that
eliminating the books specified will materially affect the scoper or
competitive force of the combined companies. The DoJ has identified
55 titles with annual gross revenues of roughly $35 million from a
combined list of approximately 3500 titles and annual gross revenues
of $2.4 billion. The titles per se are much less important than the
leverage that the combined corporation can bring to bear, and this
applies even to markets that they do not dominate at present.
However, the divestiture will have a serious negative impact on the
authors involved. The books will be in turmoil for the next edition
cycle at least--handing a textbook to another publisher is not like
giving another retailer a toaster. The books are transferred without
many of the factors that made them successful. Obvious examples of
important factors are the editorial teams, marketing specialists,
and sales representatives familiar with the product, but less
obvious and equally important factors include the programming teams
that developed the
[[Page 24177]]
supplements packages, web-sites. CD-ROMs, and so forth. Without
exception the titles transferred to another publisher will lose
market share; this is not due to any fault of Pearson's, it is just
a fact of life. A publisher entering these new markets will have no
track record with the faculty, and relationship sales are important
in this industry. Further, their sales reps will be uncertain as to
key features and competitive issues. Of course, by default most of
the market share lost by these titles will be captured by Pearson,
and this circumvents the stated goal of the divestiture.
As faculty members, textbook authors are the only people with
direct experience in all areas affected by this merger--textbook
writing production, marketing, and sales, as well as market
dynamics, faculty concerns, and the educational system in general.
It is therefore disconcerting that the issues raised by the Authors
Guild, the Text and Academic Authors Association, and the National
Writers Union--all of whom strongly opposed this merger--have been
largely ignored. The combination of these companies will further
reduce the opportunities for new authors, new texts, and new
publishers. Small publishers are already unable to compete in
markets where the cost of entry is so very high. Ten years ago an
aspiring author in the biological sciences could approach 8 major
publishers with a manuscript idea. Now that author could approach 2
or 3 (depending on the topic), and the odds are that each already
has one or more titles in that market. Along with the decrease in
opportunity comes a reduction in leverage and bargaining power. It
has become increasingly difficult to negotiate favorable contract
terms--after all, where else are you going to go?
For all of the above reasons I would like to see the Department
of Justice review and revise its Judgement regarding this merger. It
is probably logistically impossible to reverse the decision, as the
companies are well into their integration phase. However, I would
suggest that you consider adding provisions that would permit the
amalgamation of ``backroom'' operations, such as inventory,
accounting, purchasing, etc., but require the continued maintenance
of separate imprints and competition in the market. This would
involve specifically prohibiting the merging of lists and the
coalescing of related divisions, such as acquisitions, editorial,
marketing, sales, and technology support for the imprint titles.
This would not be particularly popular with Pearson, as it would
limit their ability to maximize economies of scale, but it would be
in keeping with Pearson's assurances to the FTC prior to merger
approval, which indicated that the companies would remain separate
and competing. It is worth noting that the consolidation process is
already well underway. Technology transfers have begun as noted
above, and reorganization of the sales staff and extensive merging
of book lists have been scheduled for the first half of 1999.
If the DoJ's goals are the maintenance of competition and
innovation, PH and AWL texts must compete with one another as well
as with texts published by other companies. The two companies must
therefore maintain their distinctive character, and they should
continue to develop competitive technologies for web-sites,
presentations, and simulations. If that were stipulated, I am not at
all convinced that a divestiture list is needed, and the authors
involved could be spared a lot of personal and financial distress.
If you have any questions, please feel free to contact me. With
best wishes, I remain.
Sincerely,
Frederic Martini,
[email protected]
Attachment 3
December 28, 1998.
Ms. M.J. Moltenbrey,
Chief, Civil Task Force, U.S. Department of Justice, 325 Seventh
Street, suite 300, Washington, DC 20530.
Via Fax #202-514-7300
Re: Pearson's purchase of Viacom Publishing Businesses
Dear Ms. Moltenbrey: I am writing to voice strong opposition to
the proposed settlement decree dated 11/23/98.
As one of the few remaining small players in the educational
publishing world, we applaud the intent of the decree, but we have
serious concerns that the decree will not achieve the intended
results. It is likely that the divested products will ultimately
land in the hands of one of the other giants in our industry and
thus the impact of your decree will be negligible.
Your press release quotes Joel I. Klein, Assistant Attorney
General of the Department of Justice Antitrust Division, ``Education
is an important national priority, and competition is essential to
ensure that our students have the best available educational
materials.'' If you truly believe this statement, then you must take
your decree one step further and allow some of the smaller players
in the industry an opportunity to purchase these products. Simply
allowing Pearson to sell these textbooks for an estimated $40
million to one of their next largest competitors is a serious waste
of everyone's time and will not fulfill your stated objective of
enhancing competition in the industry.
I would welcome an opportunity to discuss this matter with you
in greater detail. Thank you for your consideration.
Sincerely,
Clayton E. Jones,
Chief Executive Officer.
Attachment 4
January 19, 1999.
Mary Jean Moltenbrey,
Chief, Civil Task Force, Antitrust Division, United States
Department of Justice, 325 Seventh Street, N.W., Suite 300,
Washington, DC 20530.
Dear Ms. Moltenbrey, Pursuant to the matter now before the
United States District Court for the District of Columbia No. 1: 98-
CV-02836 (Antitrust), we are writing to comment upon the proposed
``Final Judgment'' as indicated in Section V, PROCEDURES AVAILABLE
FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT of the COMPETITIVE
IMPACT STATEMENT filed in the District Court by the plaintiff's
attorney, John W. Poole (Senior Trial Attorney, U.S. Department of
Justice). While we concur with the consent decree's resolution of
the deleterious effects upon the elementary school science textbook
market of the proposed acquisition of certain Viacom International,
Inc. publishing businesses by Pearson, Inc., the decree does not
address similar and potentially more damaging effects upon
elementary school mathematics in the United States.
As the court document states ``absent a showing of corrupt
failure of government to discharge its duty'' the court can at most
determine'' ``whether the settlement is within the reaches of the
public interest''. It is our contention that, insofar as the
mathematical education of American children is in the public
interest, the absence of a competitive impact statement regarding
the elementary school mathematics textbook market renders the
proposed settlement not ``within the reaches of public interest''.
The importance of this oversight is especially critical due to the
fact that the national mathematics market is three times as large as
that of science.
A competitive impact statement for the elementary school
mathematics textbook market would be remarkably symmetric to that
provided to the Court for elementary school science (Section B-1-a,
b). The following is an example of what the Justice Department
should have stipulated:
Basal Elementary School Mathematics Program Market
A. Description of the Market
Most elementary schools throughout the United States teach
mathematics through comprehensive mathematics programs known as
``basal elementary school mathematics programs'', which provide
organization and structure as well as guidance and support in how to
teach the subject. Student textbooks and teacher's editions of the
textbooks are the core of most basal programs, but most also include
other important educational materials and services called
``ancillary'' materials consisting of student workbooks and
notebooks, audio-visual aids such as charts and videotapes, and
materials for mathematics exercises and activities. Basal elementary
mathematics programs also often include services such as teacher
training sessions.
School districts or individual schools desiring to purchase
basal elementary school mathematics programs would not turn to any
alternative product in sufficient numbers to defeat a small but
significant increase in the price of these programs or a reduction
in the value of ancillary materials and services provided with them.
For example, schools would not substitute any of the few
nontraditional, alternative mathematics programs in sufficient
numbers to defeat a small but significant price increase in basal
elementary school mathematics programs.
B. Harm to Competition as a Consequence of the Merger
Pearson and Viacom are two of only five large publishers of
basis elementary mathematics programs. They consistently have led
the market, capturing a combined
[[Page 24178]]
share of over fifty percent of new sales over the last six years.
Pearson's program is a close copy of Viacom's program but, at
present, has a significantly smaller market share. Pearson and
Viacom also compete to maintain and improve programs that were
intended to be offered to sale throughout the United States
beginning in 1999.
Pearson and Viacom's aggressive competition has led to lower
prices, more and better ancillary materials and services, and
improvement of product quality. The proposed acquisition would
eliminate this competition and would further concentrate an already
highly concentrated market.
Successful entry into the basal elementary school mathematics
program market is difficult, time consuming, and costly. A publisher
would need to assemble editorial, sales and training staffs to
develop, test, market and provide ongoing support for the new
program and would need to overcome schools' reluctance to purchase
an elementary school mathematics program from firms lacking an
established reputation as a experienced and reliable mathematics
publisher. This complaint alleges that the transaction would likely
have the following effects:
a. actual and future competition between Pearson and Viacom in
the elementary school mathematics textbook market would be
eliminated;
b. competition generally in the market for basal elementary
school mathematics programs would be substantially lessened since it
is likely that Pearson would not continue the development of new
products already in progress at Silver Burdett Ginn;
c. prices for basal elementary school mathematics programs would
likely increase or the ancillary materials and services would likely
decline; and
d. competition in the development and improvement of basal
elementary school programs would likely be substantially lessened as
a result of the consolidation of Addison Wesley, Scott Foresman and
Silver Burdett Ginn--all acquired or to be acquired by Pearson.
Item (d) above addresses the ``development and improvement of
basic elementary school mathematics programs'' and is of special
significance. Prior to Pearson's acquisition and merger of Scott
Foresman and Addison Wesley Longmans, both of these distinguished
publishing houses competed actively and independently with Silver
Burdett Ginn and three other large firms in developing innovative
mathematics textbooks for American elementary schools. As a result
of Pearson's merger of Scott Foresman and Addison Wesley Longmans,
six major innovators were reduced immediately to five. If the
Pearson acquisition of Viacom Inc's Silver Burdett Ginn division is
permitted to proceed without restriction, the original six
innovators will have been reduced to four in less than four years--a
33% market contraction! Together the three independent houses that
will have been merged under the Pearson, Inc. label have held
elementary school children and teachers--to permit Pearson, Inc. to
eliminate the most viable competition in the elementary school
textbook market through acquisition and suppression?
We respectfully urge that the District Court require the
plaintiff to revisit the proposed final settlement to show cause why
relief similar to that provided for elementary school science not be
required for elementary school mathematics as well.
Respectfully submitted:
Bruce R. Vogeli,
Clifford Brewster Upton Professor, Program in Mathematics.
Herbert Ginsburg,
Jacob Schiff Professor, Program in Psychology.
Carole Greenes,
Professor of Mathematics and Associate Dean, Boston University.
Certificate of Service
This certifies that on April 22, 1999, I caused copies of the
foregoing Response to Public Comments to be served as indicated upon
the parties to this action and courtesy copies to be served as
indicated upon each commenter:
By hand:
Robert S. Schlossberg, Esquire, Morgan, Lewis & Bockius, 1800 M Street,
NW, Washington, DC 20036-5689, Counsel for Pearson plc and Pearson,
Inc.
By first class certified mail:
Wayne D. Collins, Equire, Shearman & Sterling, 599 Lexington Avenue,
New York, NY 10022, Counsel for Viacom International Inc.
Mr. Clayton E. Jones, Jones and Bartlett, 40 Tall Pine Drive, Sudbury,
MA 01776
Professor Gary L. Musser, 2236 Airlands Street, Las Vegas, NV 89134
Professors Vogeli Ginsburg and Greenes, c/o Professor Bruce R. Vogeli,
Teachers College, Columbia University, Box 210, West 120th Street, New
York, NY 10027-6696
Professor Federic Martini, 5071 Hana Highway, Haiku, HI 96708
John W. Poole.
[FR Doc. 99-11269 Filed 5-4-99; 8:45 am]
BILLING CODE 4410-11-M