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Judge hears closing arguments in Penguin Random House-Simon & Schuster antitrust trial

The government claims Penguin Random House would have control over more than half of the U.S. publishing market if U.S. District Judge Florence Pan, an Obama appointee, does not block the merger.

WASHINGTON (CN) — A federal judge heard closing arguments Friday in a case that will determine whether the top U.S. publisher, Penguin Random House, can purchase the fourth largest publisher, Simon & Schuster.

Over the course of the three-week antitrust trial, the Department of Justice narrowed its case on authors paid book advances of $250,000 or above, a data-based proposed anticipated bestseller market that it says may be harmed if the $2.175 billion dollar deal goes through.

But defense attorneys insist the $250,000 cutoff is problematic because it is solely based on the idea that one less publisher may “trigger” competition harm in the already ailing publishing industry, which is led by just five companies, known as “The Big Five.”

As defense attorney Daniel Petrocelli tells it, the government’s proposed market does not fit the Justice Department’s horizontal merger guidelines and it fails to consider “brown shoe” industry evaluation factors, such as publishers poaching from other publishers, which speaks to its arbitrariness.

Prosecutors grilled the global CEO of Penguin Random House, Markus Dohle, during the trial and he conceded there are “enough” books in the $250,000 tier of book advances that “would make a difference” in U.S. market share for Penguin Random House, and the merger would “cement” the company’s position as the nation’s dominant publisher. 

But Petrocelli told the judge in closings that government is “really relying” on the correlation between author advances and predicted book sales, but there is nothing “qualitatively” different between a $100 advance and a $100,000 advance.

 “General correlation does nothing in and of itself to prove the government’s proposed market,” he said.

The only reason we are here, he said, is because “the government created artificial concentration to create artificial harm.”

He recalled testimony from bestselling author Stephen King, who said that the promise of his own publisher, Simon & Schuster, to allow its agents to keep bidding under the merger, “is a little bit ridiculous." King compared it to a husband and wife "bidding against each other for the same house.”

Petrocelli said that, while he “enjoyed” listening to King testify — there is no one cutting off the 74-year-old bestseller’s compensation, plus there are other publishers who can fill a bidding void, despite the government’s “attempt to be dismissive” of them.

Longtime literary agent Christy Fletcher, founder of Fletcher & Co., voiced concerns similar to King’s, testifying that she recalled times in recent years when, “unless there was a third-party bidder, essentially, an auction could no longer proceed … if it was only imprints within Penguin Random House.”

But the defense said that circumstance can be “readily avoided” by including an outside bidder, which is not up to Penguin Random House, rather, it is at the agents’ discretion.

Agents are not only “provoking” competition among the Big 5, rather, they are fueling it among many, which is why market share does not reflect that, he said.

When Judge Florence Pan asked if internal imprint competition within Penguin Random House undermines the Justice Department’s argument that a publisher’s market share impacts industry competition, the defense attorney said it fails to give credit to internal competition.

And while the defense attorney conceded that indeed there have has been evidence shown at trial of a couple instances of in-house coordination amongst Penguin Random House imprints in recent years, he pointed out that none resulted in a lower bid.

“Imprint competition exists because it is good for business,” he said, noting that there is no “czar” of internal coordination and Penguin Random House imprints compete “zealously” against each other.

It is so good for business that Penguin Random House has been “doing this for decades,” so why would they “impose an internal system” of coordination that would “override their current system,” he said.

Justice Department attorneys argued throughout the trial that the deal would turn Penguin Random House into a “monopsony” — a situation in which there is only one buyer in a given market — in violation of federal antitrust laws. 

But if the merger goes through, he insisted that there are still three other major publishers within the Big 5 — HarperCollins, Hachette Book Group and Macmillan — that will compete “fiercely,” as well as already-existing smaller publishers that can fill any gap post-merger.

The bench trial comes amid calls for stricter antitrust law enforcement and three years after the Justice Department’s 2019 failed attempt to prove — in the same federal court — that a $40.4 billion deal between major media conglomerates AT&T and WarnerMedia would stifle competition.

At one point, the judge threw out testimony from Penguin Random House’s senior vice president, Miguel Sansigre, after the government pointed out that the data he referenced, while testifying about his company's $2.175 billion dollar bid to buy Simon & Schuster, was not properly verified.

Judge Pan, an Obama-appointee, is presiding over the matter in Washington, D.C. federal court. It is not clear when a ruling will be issued.

Follow @EmilyZantowNews
Categories / Business, Courts

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