In post-trial briefs made public late on September 10, lawyers for the U.S. Department of Justice say they have proven that Penguin Random House’s proposed blockbuster acquisition of rival Big Five publisher Simon & Schuster is anti-competitive and should be blocked.
Offering their view of the law and the evidence after months of fact-finding and three weeks of live testimony at last month’s high profile trial, DOJ attorneys call the proposed acquisition “precisely the march toward concentration and monopsony power that Congress enacted the Clayton Act to prevent,” and insist the proposed merger would "substantially lessen competition" for authors' manuscripts.
“One entity’s control of almost half of the nation’s anticipated top-selling books threatens competition in multiple ways,” the DOJ brief concludes. “Authors’ advances would fall—advances that they use to pay their bills and that reflect compensation for their work. The contractual terms publishers offer authors would worsen. Authors would have one fewer independent outlet for their work, and, as PRH’s CEO acknowledged, as advances fall the diversity of stories being told would narrow. These are not abstract concerns. They are shared by many agents, authors, and even Defendants’ executives.”
In PRH's post-trial filings, also made public on September 10, PRH attorneys reiterated their claims that the government’s case focuses on a flawed, non-existent market segment—advances for "anticipated top-selling books" over $250,000—and thus fails as a matter of law. Furthermore, even if the court somehow accepted the DOJ's allegedly ill-defined relevant market, PRH attorneys contend the government has failed to show harm enough to justify blocking the deal.
But in its 152-page "finding of fact" post-trial brief, and in a separate reply to PRH's post-trial brief, DOJ lawyers insist the government has met both their legal and factual burdens.
“The United States proved that the relevant market here is anticipated top sellers, i.e. books that receive an advance of $250,000 or more,” the brief states, noting that the “incontrovertible reality” is that authors of anticipated top sellers face “a far more limited market of purchasers” than other authors because their books require “substantial financial, marketing, reputational and distribution needs.” And while the evidence suggests that smaller publishers can “occasionally compete for a handful of titles,” these publishers do not compete successfully enough to “create any doubt about the enduring market power” of a combined PRH and S&S.
“The record evidence shows that competition among the Big Five publishers is what drives advance levels for anticipated top-selling books,” the DOJ brief states. “The idea that ‘everything is random’ in the publishing industry and therefore there can be no value attributed to how and where publishers set advance levels is contradicted by the everyday dealings of the publishing industry.”
DOJ attorneys insist the case is in fact straightforward: “the merger would eliminate a key competitor to the top player in the market and lead to a nearly 50% market share for the combined entity,” the brief states. “This easily clears the thresholds used in this Circuit to identify mergers presumed to be illegal.”
Furthermore, DOJ attorneys argue that PRH's defense “did not come close" to rebutting the government’s case.
First, in terms of competition, the fact that “on some occasions small publishers win big books” does not change the competitive reality, the DOJ brief points out. Second, the argument that “literary agents can control and manufacture competition” is unpersuasive, with the record showing “numerous examples of publishers’ ability to insist on terms that are beneficial to them and detrimental to authors: standardized royalty terms, mandatory transfer of audio rights, lengthened payout timetables, and reduced digital royalty rates.” In fact, allowing the merger to proceed would would "enhance" the ability of the major publishers to force more odious contract terms on authors, DOJ lawyers argue, by creating an undisputed industry leader whose terms other firms might follow.
And third, DOJ attorneys insist that PRH’s suggestion that “internal competition" among the PRH/S&S editors could eliminate the harm from the merger “runs contrary to common business sense.”
Citing the projections of its own expert, Dr. Nicholas Hill, DOJ attorneys conclude that advances for "anticipated-top sellers" would decline by about 4% for PRH authors, and about 11.5% for S&S authors, adding that “the loss of S&S as an independent bidder” would be felt in more that just head-to-head bidding scenarios. “S&S will no longer be a stalking horse that agents can point to as an alternative when negotiating one-on-one with an editor, or soliciting bids in a single-round auction,” the DOJ brief argues.
"The evidence and law support a permanent injunction," the brief concludes. "The Court should block the merger."
In November of 2020, Penguin Random House parent Bertelsmann announced its proposed acquisition of Viacom CBS subsidiary Simon & Schuster for a hefty $2.175 billion. Nearly a year later, on November 2, 2021, the U.S. Department of Justice announced its suit to block the deal. “If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry,” said U.S. attorney general Merrick Garland in announcing the action.
The briefs are likely the final act in the DOJ's effort to block the acquisition of S&S before Judge Florence Y. Pan issues her ruling, expected later this fall.
Editors Note: This is a breaking story. We will more fully break down both sides lengthy post-trial briefs in the coming days.
PW's extensive coverage of the merger and the the three-week trial can be found here.
