[Federal Register Volume 78, Number 72 (Monday, April 15, 2013)]
[Notices]
[Pages 22298-22302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08714]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Apple, Inc., et al.; Public Comments and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the United States' 
Response to Public Comments on the proposed Final Judgment as to 
Defendants The Penguin Group, a division of Pearson PLC, and Penguin 
Group (USA), Inc. in United States v. Apple, Inc., et al., Civil Action 
No. 12-CV-2826 (DLC), which was filed in the United States District 
Court for the Southern District of New York on April 5, 2013, along 
with copies of the three comments received by the United States.
    Copies of the comments and the response are available for 
inspection at the Department of Justice Antitrust Division, 450 Fifth 
Street NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-2481), 
on the Department of Justice's Web site at http://www.justice.gov/atr/cases/apple/index-1.html, and at the Office of the Clerk of the United 
States District Court for the Southern District of New York, Daniel 
Patrick Moynihan United States Courthouse, 500 Pearl Street, New York, 
NY 10007-1312. Copies of any of these materials may also be obtained 
upon request and payment of a copying fee.

 Patricia A. Brink,
 Director of Civil Enforcement.

United States District Court for the Southern District of New York

United States of America, Plaintiff, v. Apple, Inc., et al., 
Defendants.

Civil Action No. 12-CV-2826 (DLC) ECF Case

Response by Plaintiff United States to Public Comments on the Proposed 
Final Judgment as to the Penguin Defendants

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the 
United States hereby responds to the three public comments received 
regarding the proposed Final Judgment as to Defendants The Penguin 
Group, a division of Pearson PLC, and Penguin Group (USA), Inc. 
(collectively, ``Penguin''). After careful consideration of the 
comments submitted, the United States continues to believe that the 
proposed Final Judgment as to Penguin (``proposed Penguin Final 
Judgment'') will provide an effective and appropriate remedy for the 
antitrust violations alleged in the Complaint.
    The three comments submitted to the United States, along with a 
copy of this Response to Comments, are posted publicly at http://www.justice.gov/atr/cases/apple/index-1.html, in accordance with 15 
U.S.C. 16(d) and the Court's April 1, 2013 Order (Docket No. 200). The 
United States will publish this Internet location and this Response to 
Comments in the Federal Register, see 15 U.S.C. 16(d), and will then, 
pursuant to the Court's January 7, 2013 Order (Docket No. 169), move 
for entry of the proposed Penguin Final Judgment by no later than April 
19, 2013.

I. Procedural History

    On April 11, 2012, the United States filed a civil antitrust 
Complaint alleging that Apple, Inc. (``Apple'') and five of the six 
largest publishers in the United States (``Publisher Defendants'') 
conspired to raise prices of electronic books (``e-books'') in the 
United States in violation of Section 1 of the Sherman Act, 15 U.S.C. 
1. On the same day, the United States filed a proposed Final Judgment 
(``Original Final Judgment'') as to three of the Publisher Defendants: 
Hachette Book Group, Inc., HarperCollins Publishers L.L.C., and Simon & 
Schuster, Inc. (collectively, ``Original Settling Defendants''). After 
publication of the Original Final Judgment, the United States received 
868 public comments. The United States filed its response to these 
comments on July 23, 2012 (Docket No. 81) (``Original Response to 
Comments''), and filed a motion for entry of the Original Final 
Judgment on August 3, 2012 (Docket No. 88). On September 5, 2012, this 
Court issued an Opinion and Order finding that the Original Final 
Judgment satisfied the requirements of the Tunney Act, see United 
States v. Apple, Inc., 2012 WL 3865135, at *6-7 (Slip Op. (Docket No. 
113) at 16-19) (S.D.N.Y. Sept. 5, 2012), and then entered the Original 
Final Judgment on September 6, 2012 (Docket No. 119).
    On December 18, 2012, the United States reached a settlement with 
Penguin on substantially the same terms as those contained in the 
Original Final Judgment, and filed a proposed Final Judgment and a 
Stipulation signed by the United States and Penguin consenting to the 
entry of the proposed Final Judgment after compliance with the 
requirements of the Tunney Act, 15 U.S.C. 16 (Docket No. 162). Pursuant 
to those requirements, the United States filed its Competitive Impact 
Statement (``CIS'') with the Court on December 18, 2012 (Docket No. 
163); the proposed Final Judgment and CIS were published in the Federal 
Register on December 31, 2012, see United States v. Apple, Inc., et 
al., 77 FR 77094; and summaries of the terms of the proposed Final 
Judgment and CIS, together with directions for the submission of 
written comments relating to the proposed Final Judgment, were 
published in The Washington Post for seven days beginning on December 
23, 2012 and ending on December 29, 2012 and in the New York Post for 
seven days beginning on December 27, 2012 and ending on January 4, 
2013. The sixty-day period for public comment ended on March 5, 2013. 
The United States received three comments, which are described below 
and attached hereto.\1\
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    \1\ On February 8, 2013, the United States reached a settlement 
with Defendants Verlagsgruppe Georg von Holtzbrinck GmbH and 
Holtzbrinck Publishers, LLC d/b/a Macmillan (collectively, 
``Macmillan''), and filed a proposed Final Judgment as to Macmillan 
(``proposed Macmillan Final Judgment'') and a Stipulation signed by 
the United States and Macmillan consenting to entry of the proposed 
Final Judgment after compliance with the Tunney Act (Docket No. 
174). The public comment period on the proposed Macmillan Final 
Judgment will expire on April 28, 2013.
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II. The Complaint & the Proposed Final Judgment as to Penguin

A. The Publisher Defendants' Conspiracy With Apple

    The United States has described the conspiracy among Apple and the 
Publisher Defendants in detail in a number of previous submissions to 
the Court, including the Complaint (Docket No. 1), the Original 
Response to Comments (Docket No. 81), and the CIS (Docket No. 163), and 
therefore offers only a relatively brief summary here.
    Publisher Defendants were unhappy with Amazon.com, Inc.'s 
(``Amazon's'') $9.99 pricing of newly released and bestselling e-books 
and sought to increase those prices. Compl. ]] 3, 32-34. Because each 
Publisher Defendant expected that Amazon would resist any unilateral 
attempt to force it to increase its prices and feared that it would 
lose sales if its e-books were priced higher than its competitors' e-
books, id. ]] 35-36, 46, they ultimately agreed to act collectively to 
raise retail e-book prices. Id. ]] 47-50.
    Apple's anticipated entry into the e-book business provided a 
perfect opportunity to coordinate the Publisher

[[Page 22299]]

Defendants' collective action to raise e-book prices. Id. ] 51. After 
two publishers suggested that Apple enter e-book sales under the 
``agency model,'' id. ]] 52-54, 63, Apple recognized that use of that 
model by all publishers would give the publishers control over retail 
e-book prices, allowing them to address their concerns with Amazon's 
$9.99 pricing, while allowing Apple to shield itself from retail price 
competition and secure a 30 percent margin on each e-book sale. Id. ] 
56. Apple realized this scheme would be at the cost of ``the customer 
pay[ing] a little more.'' Id.
    To achieve this goal, Apple proposed an unusual most favored nation 
(``MFN'') pricing provision that effectively committed the Publisher 
Defendants' to impose the agency pricing model on all other retailers, 
id. ]] 65-66, and ensured that Apple faced no price competition from 
other retailers. Id. ] 65. In January 2010, Apple sent to each 
Publisher Defendant substantively identical term sheets that Apple told 
them were devised after ``talking to all the other publishers.'' Id. ]] 
62-64. Apple kept each Publisher Defendant informed about the status of 
its negotiations with other Publisher Defendants, which culminated in 
Apple and all Publisher Defendants executing nearly identical agency 
agreements (the ``Apple Agency Agreements'') within a three-day span in 
January 2010. Id. ]] 61, 74.
    The purpose of the Apple Agency Agreements was to raise and 
stabilize e-book prices while insulating Apple from competition. Id. ] 
66. The Apple Agency Agreements included identical pricing tiers, with 
$12.99 and $14.99 price points for bestsellers. Id. ] 75. Apple CEO 
Steve Jobs urged one Publisher Defendant to ``[t]hrow in with Apple and 
see if we can all make a go of this to create a real mainstream e-books 
market at $12.99 and $14.99.'' Id. ] 71. As a result of the Publisher 
Defendants' illegal agreement with Apple, consumers have paid higher 
prices for e-books than they would have paid in a market free of 
collusion. Id. ]] 90-93.

B. The Proposed Penguin Final Judgment

    The language and relief contained in the proposed Penguin Final 
Judgment is largely identical to the terms included in the Original 
Final Judgment. Based on reported reductions in the prices of e-book 
titles offered by HarperCollins, Hachette, and Simon & Schuster,\2\ the 
proposed Penguin Final Judgment likely will lead to lower e-book prices 
for many Penguin titles. As explained in more detail in the CIS, the 
requirements and prohibitions included in the proposed Penguin Final 
Judgment will eliminate Penguin's illegal conduct, prevent recurrence 
of the same or similar conduct, and establish a robust antitrust 
compliance program.
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    \2\ See, e.g., Scott Nichols, HarperCollins Offering Discounted 
eBooks After Price Fixing Settlement, TechRadar (Sept. 12, 2012), 
http://www.techradar.com/news/portable-devices/portable-media/harpercollins-offering-discounted-ebooks-after-price-fixing-settlement-1096467 (``Bestselling ebooks from the publisher such as 
`The Fallen Angel' and `Solo' can now be found for $9.99 on Amazon, 
Barnes and Noble, and other online retailers.''); Nate Hoffelder, 
Hachette Has Dropped Agency Pricing on eBooks, The Digital Reader 
(Dec. 4, 2012), http://www.the-digital-reader.com/2012/12/04/hachette-has-dropped-agency-pricing-on-ebooks/ (``Amazon is 
discounting the ebooks by $1 to $4 from the list price, and both 
Barnes & Noble and Apple are making similar discounts''); Jeremy 
Greenfield, Simon & Schuster Has a New Deal With Amazon, Other 
Retailers, Digital Book World (Dec. 9, 2012), http://www.digitalbookworld.com/2012/looks-like-simon-schuster-has-a-new-deal-with-amazon-other-retailers/ (``Ebook prices were lowered for 
Simon & Schuster titles over the weekend on sites like Amazon and 
Nook.com to levels several dollars below what they had been earlier 
in the week.'').
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    The proposed Penguin Final Judgment requires that Penguin terminate 
its Apple Agency Agreement within seven days of this Court's entry. See 
proposed Penguin Final Judgment Sec.  IV.A. It also requires Penguin to 
terminate any other contracts with e-book retailers that restrict 
retailer discounting or that contain a price MFN, see id. Sec.  IV.B, 
and forbids Penguin, for two years, from entering new contracts that 
restrict retailers from discounting Penguin's e-books. See id. 
Sec. Sec.  V.A & V.B. These provisions will help ensure that new 
contracts will not be set under the same collusive conditions that 
produced the Apple Agency Agreements. The proposed Penguin Final 
Judgment permits Penguin, however, in new agreements with e-book 
retailers, to agree to terms that prevent the retailer from selling 
Penguin's entire catalog of e-books at a sustained loss. See id. Sec.  
VI.B.
    To prevent a recurrence of the alleged conspiracy, the proposed 
Penguin Final Judgment prohibits Penguin from entering into new 
agreements with other publishers under which prices are fixed or 
coordinated, see id. Sec.  V.E, and also forbids communications between 
Penguin and other publishers about competitively sensitive subjects. 
See id. Sec.  V.F. Banning such communications is critical here, where 
communications among publishing competitors were a common practice and 
led directly to the collusive agreement alleged in the Complaint.
    As outlined in Section VII, Penguin also must designate an 
Antitrust Compliance Officer, who is required to distribute copies of 
the Penguin Final Judgment; ensure training related to the Penguin 
Final Judgment and the antitrust laws; certify compliance with the 
Penguin Final Judgment; maintain a log of all communications between 
Penguin and employees of other Publisher Defendants; and conduct an 
annual antitrust compliance audit. This compliance program is necessary 
considering the extensive communication among competitors' CEOs that 
led to the Publisher Defendants' conspiracy with Apple.

III. Standard of Judicial Review

    In its Opinion and Order finding that the Original Final Judgment 
satisfied the requirements of the Tunney Act, this Court articulated 
the standard of review under the APPA. See United States v. Apple, 
Inc., 2012 WL 3865135, at *5-6 (Slip Op. (Docket No. 113) at 12-16) 
(S.D.N.Y. Sept. 5, 2012). The United States briefly reiterates that 
standard here.
    Under the Tunney Act, proposed consent judgments in antitrust cases 
brought by the United States are subject to a sixty-day comment period, 
after which the court shall determine whether entry of the proposed 
final judgment ``is in the public interest.'' 15 U.S.C. 16(e)(1).
    When parties come before the court in a Tunney Act proceeding, they 
have resolved their dispute with respect to a government antitrust 
complaint. Accordingly, the court's inquiry is necessarily a limited 
one as the government is entitled to ``broad discretion to settle with 
the defendant within the reaches of the public interest.'' United 
States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); accord 
United States v. KeySpan Corp., 763 F. Supp. 2d 633, 637 (S.D.N.Y. 
2011).
    To meet this standard, the United States ``need only provide a 
factual basis for concluding that the settlements are reasonably 
adequate remedies for the alleged harms.'' United States v. SBC 
Commc'ns, Inc., 489 F. Supp. 2d 1, 17 (D.D.C. 2007); accord KeySpan 
Corp., 763 F. Supp. 2d at 637-38. The United States ``need not prove 
its underlying allegations in a Tunney Act proceeding,'' as such a 
requirement ``would fatally undermine the practice of settling cases 
and would violate the intent of the Tunney Act.'' SBC Commc'ns, 489 F. 
Supp. 2d at 20
    The Tunney Act requires the court to consider specific factors in 
determining whether the proposed Final Judgment is

[[Page 22300]]

in the ``public interest.'' 15 U.S.C. 16(e)(1). Courts ``cannot look 
beyond the complaint in making the public interest determination unless 
the complaint is drafted so narrowly as to make a mockery of judicial 
power.'' SBC Commc'ns, 489 F. Supp. 2d at 15. Under the statute, the 
court should consider the following factors:

    (a) the competitive impact of such judgment, including 
termination of alleged violations, provisions for enforcement and 
modification, duration of relief sought, anticipated effects of 
alternative remedies actually considered, whether its terms are 
ambiguous, and any other competitive considerations bearing upon the 
adequacy of such judgment that the court deems necessary to a 
determination of whether the consent judgment is in the public 
interest; and
    (b) the impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and 
individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if 
any, to be derived from a determination of the issues at trial.

    15 U.S.C. 16(e)(1)(A)-(B). In other words, under the Tunney Act, a 
court considers, among other things, the relationship between the 
remedy secured and the specific allegations set forth in the 
government's complaint, whether the decree is sufficiently clear, 
whether enforcement mechanisms are sufficient, and whether the decree 
may positively harm third parties. See Microsoft, 56 F.3d at 1458-62. 
With respect to the adequacy of the relief secured by the decree, a 
court may not ``engage in an unrestricted evaluation of what relief 
would best serve the public.'' United States v. BNS, Inc., 858 F.2d 
456, 462 (9th Cir. 1988) (quoting United States v. Bechtel Corp., 648 
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; 
United States v. Alex. Brown & Sons, Inc., 963 F. Supp. 235, 238 
(S.D.N.Y. 1997). Instead, the court should grant due respect to the 
United States' ``prediction as to the effect of proposed remedies, its 
perception of the market structure, and its view of the nature of the 
case.'' United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 
6 (D.D.C. 2003).

IV. Summary of Public Comments and the Responses of the United States

    During the sixty-day comment period, the United States received 
comments from three individuals or groups, each of which previously 
submitted comments in response to the Final Judgment as to the Original 
Settling Defendants: (1) Bob Kohn; (2) the National Association of 
College Stores; and (3) Steerads Inc. The comments, which are similar 
in substance to each commenter's prior submission, are attached to this 
response. As explained in detail below, after consideration of the 
three comments, the United States continues to believe that the 
proposed Penguin Final Judgment is in the public interest.

A. Bob Kohn

    Commenter Bob Kohn has already made a number of submissions in 
connection with this case.\3\ Mr. Kohn's latest submission focuses 
largely on his claim that the Complaint is misguided and the 
defendants' conduct was legal. In the final pages he addresses whether 
the settlement is within the reaches of the public interest. His 
submission provides no grounds on which the Court should find that 
entry of the proposed Penguin Final Judgment would not be in the public 
interest.
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    \3\ See Comment concerning the proposed Final Judgment as to the 
Original Settling Defendants (May 30, 2012), available at http://www.justice.gov/atr/cases/apple/comments/atc-0143.pdf; Mem. in Supp. 
of Mot. of Bob Kohn for Leave to Participate as Amicus Curiae (Aug. 
13, 2012) (Docket No. 97); Br. of Bob Kohn as Amicus Curiae (Sept. 
4, 2012) (Docket No. 110); Mem. in Supp. of Bob Kohn's Mot. to Stay 
Final J. Pending Appeal (Sept. 7, 2012) (Docket No. 117); Mem. * * * 
In Supp. of Mot. by Bob Kohn for Leave to Intervene for the Sole 
Purpose of Appeal (Sept. 7, 2012) (Docket No. 115); Mem. of Law in 
Reply to Opp'n of the United States to Mot. by Bob Kohn for Leave to 
Intervene for the Sole Purpose of Appeal (September 20, 2012) 
(Docket No. 130). Most recently, the Second Circuit affirmed this 
Court's denial of Mr. Kohn's motion to intervene for purposes of 
appealing the Court's entry of the Original Final Judgment. See Bob 
Kohn v. United States, No. 12-4017 (2d Cir. Mar. 26, 2013).
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    Mr. Kohn first asserts that, if Amazon priced e-books below their 
marginal costs, a conspiracy among Apple and the Publisher Defendants 
to raise retail prices of e-books could not, as a matter of law, be 
unlawful. This is particularly the case, Mr. Kohn asserts, because the 
method by which Apple and the Publisher Defendants succeeded in 
increasing e-book prices and eliminating retail price competition was 
the imposition of lawful agency terms. Kohn Comment at 12-18.
    Mr. Kohn is not correct that firms may, as a matter of law, 
conspire to undo what they regard to be anticompetitive conduct. As the 
United States stated its Original Response to Comments, even if there 
were evidence to substantiate claims of monopolization or predatory 
pricing by Amazon, it would not have been acceptable for the Publisher 
Defendants to conspire with Apple to engage in self help. As this Court 
observed in finding that entry of the Original Final Judgment satisfied 
the requirements of the Tunney Act, ``even if Amazon was engaged in 
predatory pricing, this is no excuse for unlawful price-fixing. 
Congress `has not permitted the ago-old cry of ruinous competition and 
competitive evils to be a defense to price-fixing conspiracies.' * * * 
The familiar mantra regarding `two wrongs' would seem to offer guidance 
in these circumstances.'' United States v. Apple, Inc., 2012 WL 
3865135, at *16 (Slip Op. (Docket No. 113) at 40) (S.D.N.Y. Sept. 5, 
2012) (quoting United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 
221 (1940)). See also FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 465 
(1986) (``That a particular practice may be unlawful is not, in itself, 
a sufficient justification for collusion among competitors to prevent 
it.'').\4\
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    \4\ The permissibility of agency relationships in other contexts 
does not alter this conclusion. As the United States stated in its 
Original Response to Comments, ``[t]he United States * * * does not 
object to the agency method of distribution in the e-book industry, 
only to the collusive use of agency to eliminate competition and 
thrust higher prices onto consumers.'' Original Response to Comments 
at vi; see also id. at 17 (``Of course, publishers that were not 
parties to the conspiracy face no government challenge whatsoever as 
to agency agreements independently arrived at with e-book 
retailers.'') & 37-38 (``While agency agreements are not inherently 
illegal, collusive agreements that prevent price competition are, 
and the settlement is designed to unwind the effects of agency 
contracts stemming from a collusive agreement.'').
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    Mr. Kohn next argues, citing Columbia Broadcasting System, Inc. v. 
ASCAP, 620 F.2d 930 (2d Cir. 1980), that the Publisher Defendants' 
conduct was legal as long as (1) they had to act together to impose 
agency on Amazon and other e-book retailers and (2) the collusive 
conduct did not impinge on the Publisher Defendants' right to sell e-
books ``separately to any buyer at any price.'' Kohn Comment at 20. 
Using his test, Mr. Kohn argues that both conditions are met and the 
Defendants should not have been sued.
    Mr. Kohn misreads CBS v. ASCAP. That case was a remand of the 
Supreme Court's decision in Broadcast Music, Inc. v. Columbia 
Broadcasting System, Inc., 441 U.S. 1 (1979), and concerned joint 
action by license holders of songs to create a new licensing product--a 
blanket license that allowed unlimited access to all of their songs. On 
remand, the Second Circuit found blanket performing rights licenses not 
to restrain trade because music users had a ``fully available'' 
opportunity to bypass the new blanket license and obtain rights to 
individual songs directly from individual composers, just as they had 
before the creation of the blanket license. 620 F.2d at 935-36 (``If 
the opportunity to purchase performing rights to individual songs is 
fully available, then it is customer preference

[[Page 22301]]

for the blanket license, and not the license itself, that causes the 
lack of price competition among songs.''). Here, the Complaint alleges 
that the Publisher Defendants did not act together to create a new, 
supplemental product, but to raise price. And, in agreeing to raise 
price, they agreed not to make individual e-books available on the same 
terms that had existed before they acted jointly. See Compl. ]] 3, 66 
(alleging that the retail-price MFNs in the agreements created 
disincentives to reducing prices or permitting discounting); United 
States v. Apple, Inc., 2012 WL 3865135, at *13 (Slip Op. (Docket No. 
113) at 33) (S.D.N.Y. Sept. 5, 2012) (``After defendants' coordinated 
switch to agency pricing, a consumer could not find Publisher 
Defendants' newly-released and bestselling e-books for $9.99 at any 
retailer.'').\5\
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    \5\ Mr. Kohn is correct that the United States alleged in the 
Complaint that it was not in any individual Publisher Defendant's 
unilateral self interest to impose agency terms on Amazon or other 
e-book retailers--and that the Publisher Defendants could not have 
accomplished their goal of raising retail prices of e-books without 
conspiring with each other and Apple. See, e.g., Compl. ]] 5, 35-36, 
38, 60, 69. These allegations support a finding of an agreement 
under Section 1 of the Sherman Act, 15 U.S.C. Sec.  1. See Toys 
``R'' Us, Inc. v. FTC, 221 F.3d 928, 935-36 (7th Cir. 2000) 
(``inferring'' horizontal agreement from facts showing ``that the 
only condition on which each toy manufacturer would agree to TRU's 
demands was if it could be sure its competitors were doing the same 
thing'').
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    When Mr. Kohn finally turns away from his underlying concerns that 
the Defendants' conduct was legal and considers the remedy at issue, he 
argues that the proposed Penguin Final Judgment ``reverses'' the ``pro-
competitive impacts'' of ``reducing Amazon's monopoly power and 
monopsony power.'' Kohn Comment at 23. In making that claim, Mr. Kohn 
assumes that the consent decree bars agency contracts and he intimates 
that the decree will not lead to ``efficient pricing'' (what he calls 
marginal cost pricing) of e-books, but rather will ``allow[] a 
predatory-induced market failure to resume for another two years,'' 
with harmful consequences. Kohn Comment at 28-29. However, the proposed 
Penguin Final Judgment permits Penguin to enter contracts that ensure 
the ``efficient pricing'' he desires. See proposed Penguin Final 
Judgment Sec.  VI.B. Mr. Kohn likely is not aware that after the Court 
approved the Original Final Judgment, which contained an identical 
term, at least one of the first three settling publishers entered into 
an agency contract with an e-book retailer that allowed that retailer 
to discount e-books only up to the level of its aggregate commission. 
This type of arrangement allows a retailer to try to grow its share by 
competing away much of its commission by reducing prices to consumers. 
Moreover, a retailer that embraces this practice will be selling e-
books closer to their marginal cost (a goal Mr. Kohn applauds) than 
they were permitted to under the collusively imposed agency 
agreements--which granted no pricing discretion to the retailer.\6\
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    \6\ Mr. Kohn is incorrect when he states pricing below marginal 
costs is ``presumptively illegal.'' Kohn Comment at 29 (emphasis in 
original). The Second Circuit, in Northeastern Telephone Company v. 
American Telephone & Telegraph Company, found only that prices below 
marginal costs will be ``presumed predatory.'' 651 F.2d 76, 88 (2d 
Cir. 1981). To succeed on a predatory pricing claim, an antitrust 
plaintiff must also establish that there is a ``dangerous 
probability'' that the defendant will later ``recoup[ ] its 
investment in below-cost prices.'' Brooke Group Ltd. v. Brown & 
Williamson Tobacco Corp., 509 U.S. 209, 224 (1993).
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    Finally, Mr. Kohn faults the United States for not disclosing as 
``determinative'' materials or documents, pursuant to 15 U.S.C. 16(b), 
investigative materials revealing Amazon's pricing practices. Kohn 
Comment at 30. The ``determinative'' documents requirement requires 
submission of a ``fairly narrow'' set of materials, United States v. 
Bleznak, 153 F.3d 16, 20 (2d Cir. 1998), and does not require provision 
of the materials sought by Mr. Kohn. The United States' obligation is 
to provide ``factual foundation for [its] decisions such that its 
conclusions regarding the proposed settlement are reasonable.'' United 
States v. Keyspan Corp., 763 F. Supp. 2d 633, 637-38 (S.D.N.Y. 2011) 
(citation omitted). This Court determined previously that the materials 
supplied by the United States provided ``ample factual foundation for 
[its] decisions regarding the proposed Final Judgment.'' United States 
v. Apple, Inc., 2012 WL 3865135, at *12-13 (Slip Op. (Docket No. 113) 
at 32-33) (S.D.N.Y. Sept. 5, 2012).

B. National Association of College Stores

    The National Association of College Stores (``NACS'') describes 
itself as a trade association whose members include 3,000 stores 
serving colleges, universities, or K-12 schools and more than 1,000 
companies supplying goods and services to campus stores. The NACS 
expresses concern about the potential applicability of the proposed 
Penguin Final Judgment to the sale of e-textbooks. NACS specifically 
fears that the requirements and prohibitions in the proposed Penguin 
Final Judgment will apply to Pearson Education or other educational 
publishing companies owned by Penguin's parent, Pearson Plc.\7\
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    \7\ In a comment filed in response to the proposed Final 
Judgment as to the Original Settling Defendants, the NACS expressed 
similar concern about the applicability of that consent decree to 
the e-textbooks market. See National Association of College Stores' 
Comments Concerning Proposed E-Book Final Judgment, available at 
http://www.justice.gov/atr/cases/apple/comments/atc-0845.pdf; see 
also United States v. Apple, Inc., 2012 WL 3865135, at *11 n.12 
(Slip Op. (Docket No. 113) at 29 n.12) (S.D.N.Y. Sept. 5, 2012) 
(discussing concerns raised by the NACS).
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    The NACS is correct that the conspiracy among the Publisher 
Defendants and Apple challenged in the Complaint concerned the sale of 
trade e-books, not e-book versions of academic textbooks. Compl. ]] 27 
n.1, 99. However, none of the Penguin entities subject to the proposed 
Penguin Final Judgment publish e-textbooks. It is not necessary to 
clarify the proposed Penguin Final Judgment, as the NACS suggests, to 
specifically exclude e-textbooks.\8\
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    \8\ Because Defendant Holtzbrinck Publishers, LLC d/b/a 
Macmillan publishes e-textbooks, the proposed Macmillan Final 
Judgment expressly excludes ``the electronically formatted version 
of a book marketed solely for use in connection with academic 
coursework'' from the consent decree's definition of ``e-book.'' See 
Proposed Macmillan Final Judgment (Docket No. 174-1), ] II.D. No 
such modification is required with respect to the proposed Penguin 
Final Judgment because the proposed Penguin Final Judgment expressly 
excludes the Pearson entities that publish e-textbooks.
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C. Steerads Inc.

    Steerads is a Canadian corporation that develops solutions to 
``improve online advertisers' return on investment by optimizing user-
specific advertisements bids.'' Steerads Comment at 2-3. It states that 
``the terms and conditions imposed on [Penguin] in [the proposed Final 
Judgment] are clear, thus enforceable.'' Id. at 2. It asserts, however, 
that the proposed Penguin Final Judgment ``provides inadequate relief'' 
in that it fails to include a provision under which the consent decree 
would have prima facie effect in private litigation. Id. at 3.\9\
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    \9\ Steerads notes that it ``proposed identical relief as to the 
Original Judgment.'' Steerads Comment at 3. See Public Comments 
Submitted to the United States by Steerads Inc. Concerning a 
Proposed Final Judgment and Supporting Stipulation and Competitive 
Impact Statement filed with the Court in the Above-Captioned Matter, 
available at http://www.justice.gov/atr/cases/apple/comments/atc-0374.pdf.
---------------------------------------------------------------------------

    Steerads does not suggest that the injunctive relief contained in 
the proposed Penguin Final Judgment fails to adequately end the harm to 
competition alleged by the United States in the Complaint. It instead 
seeks additional relief to enhance the likelihood of the recovery of 
damages in

[[Page 22302]]

subsequent litigation. The United States, however, deemed it 
appropriate to avoid the costs and delays associated with litigation by 
acceding to a consent decree with Penguin that had the same substantive 
provisions as the consent decree the Court previously approved, 
including a provision making it clear that the settlement did not 
constitute a finding of liability that would harm the settling 
defendant in follow-on private litigation. The Supreme Court has 
approved such settlements before. See, e.g., Swift & Co. v. United 
States, 276 U.S. 311, 327 (1928) (refusing to vacate injunctive relief 
in consent judgment that contained recitals in which defendants 
asserted their innocence); see also United States v. Morgan Stanley, 
881 F. Supp. 2d 563, 568-69 (S.D.N.Y. 2012) (observing that defendants 
are encouraged ``to settle promptly'' by the Tunney Act provision that 
makes consent decrees entered before testimony is taken not usable 
``against a defendant in private litigation'' (citation omitted)). 
Indeed, the legislative history of the Tunney Act shows that Congress 
generally assumed that consent decrees will not include admissions of 
liability, with Senator Tunney noting in his floor statement that 
``[e]ssentially the [consent] decree is a device by which the 
defendant, while refusing to admit guilt, agrees to modify its conduct 
and in some cases to accept certain remedies designed to correct the 
violation asserted by the Government.'' 119 Cong. Rec. 3451. See also 
S. Rep. 93-298, 93 Cong., 1st Sess. 6 (1973) at 5-7; H. Rep. No. 1463, 
93 Cong., 2nd Sess. (1974) at 6 (``Ordinarily, defendants do not admit 
to having violated the antitrust or other laws alleged as violated in 
complaints that are settled.'').

V. Conclusion

    The United States continues to believe that the proposed Penguin 
Final Judgment, as drafted, provides an effective and appropriate 
remedy for the antitrust violations alleged in the Complaint and that 
it is therefore in the public interest.
    Pursuant to the Court's January 7, 2013 Order (Docket No. 169), the 
United States will move for entry of the proposed Penguin Final 
Judgment after this Response to Comments is published in the Federal 
Register (along with the Internet location where the three comments are 
posted) and by no later than April 19, 2013.

Dated: April 5, 2013.

Respectfully submitted,

s/Mark W. Ryan,
Mark W. Ryan,
Lawrence E. Buterman,
Stephen T. Fairchild.

Attorneys for the United States,
United States Department of Justice,
Antitrust Division,
450 Fifth Street NW., Suite 4000,
Washington, DC 20530,
(202) 532-4753,
[email protected].

Certificate of Service

    I, Stephen T. Fairchild, hereby certify that on April 5, 2013, I 
caused a copy of the Response of Plaintiff United States to Public 
Comments on the Proposed Final Judgment as to the Penguin Defendants to 
be served by the Electronic Case Filing System, which included the 
individuals listed below.

For Apple:

Daniel S. Floyd,

Gibson, Dunn & Crutcher LLP, 333 S. Grand Avenue, Suite 4600, Los 
Angeles, CA 90070, (213) 229-7148, [email protected].

For Macmillan and Verlagsgruppe Georg Von Holtzbrinck GMBH:

Joel M. Mitnick,

Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, (212) 
839-5300, [email protected].

For Penguin U.S.A. and the Penguin Group:
Daniel F. McInnis,

Akin Gump Strauss Hauer & Feld, LLP, 1333 New Hampshire Avenue NW., 
Washington, DC 20036, (202) 887-4000, [email protected].

For Hachette:

Walter B. Stuart IV,

Freshfields Bruckhaus Deringer LLP, 601 Lexington Avenue, New York, 
NY 10022, (212) 277-4000, [email protected].

For HarperCollins:

Paul Madison Eckles,

Skadden, Arps, Slate, Meagher & Flom, Four Times Square, 42nd Floor, 
New York, NY 10036, (212) 735-2578, [email protected].

For Simon & Schuster:

Yehudah Lev Buchweitz,

Weil, Gotshal & Manges LLP (NYC), 767 Fifth Avenue, 25th Fl., New 
York, NY 10153, (212) 310-8000 x8256, [email protected].

    Additionally, courtesy copies of this Competitive Impact 
Statement have been provided to the following:

For the State of Connecticut:

W. Joseph Nielsen,
Assistant Attorney General, Antitrust Division, Office of the 
Attorney General, 55 Elm Street, Hartford, CT 06106, (860) 808-5040, 
[email protected].

For the Private Plaintiffs:

Jeff D. Friedman,

Hagens Berman, 715 Hearst Ave., Suite 202, Berkeley, CA 94710, (510) 
725-3000, [email protected].

For the State of Texas:

Gabriel R. Gervey,

Assistant Attorney General, Antitrust Division, Office of the 
Attorney General of Texas, 300 W. 15th Street, Austin, Texas 78701, 
(512) 463-1262, [email protected].

s/Stephen T. Fairchild

Stephen T. Fairchild

Attorney for the United States, United States Department of Justice, 
Antitrust Division, 450 Fifth Street, NW., Suite 4000, Washington, 
DC 20530, (202) 532-4925, [email protected].

[FR Doc. 2013-08714 Filed 4-12-13; 8:45 am]
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