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Today in AMS: More on those pesky antitrust issues

In my previous post I wondered about the potential antitrust issues that arise from AMS‘s bankruptcy and now, Perseus‘s potential deal to acquire the distribution interests of PGW publishers. To answer my questions, I turned to C.E. Petit, an intellectual property lawyer who specializes in publishing and writer-related legal issues. He’s already written about his AMS-related concerns at his blog, Scrivener’s Error, and now follows up with why there are “substantial problems with antitrust related to PGW”:

* Acquisition of PGW by any existing distributor (or publisher that distributes other publishers’ works, such as Simon & Schuster) would implicate horizontal antitrust principles, when one or more firms control a single, discrete stage in the distribution of a definable product or service (in this case, the distribution of books from publishers to retail sellers.) The industry is already, by even the least-inquisitive measurements, dangerously concentrated.

* Acquisition of PGW by a publisher with a more than miniscule list would implicate vertical antitrust principles. The best historical example is probably the twenty-year-long fight to force the film studios to give up ownership of movie theaters (1940s-1960s). The film studios made films, and controlled distribution (in an anticompetitive manner) by ownership of the only place that the final consumer could go to see the film (the theatres.) Antitrust theory says hat distribution and sales to the end user should be distinct from manufacture/development.

The downside is that the only parties with standing to object on antitrust grounds are:

(1) Consumers, who would have tremendous difficulty showing harm (they have to show either a restriction of available product or increase in the price of product)
(2) Competitors, whose competitive position is inherently harmed by the merger (no court has sustained such a challenge in a decade)
(3) The government, which has repeatedly shown no interest in dealing with antitrust in the entertainment industry since the early 1980s

Thus, although I have grave antitrust concerns, I don’t see that anyone is going to do anything about them.

Despite Petit’s understandable pessimism, there is a potential way to get around the very glaring antitrust issues. “The end-around would be for another creditor of PGW to object, in the course of the bankruptcy proceeding, to the sale of PGW to Perseus on the ground that it harms the overall proceeds available to creditors,” he says, while adding that this starts “to get beyond my competence in bankruptcy — or, for that matter, the competence of the bankruptcy professors I’ve consulted on the matter, which include the editor of the leading treatise on bankruptcy who testifies before Congress about twice a year on bankruptcy issues.”

No matter what transpires, Petit feels the real demon of the publishing industry is returns, “which is driving everything (and itself is an antitrust problem). Unfortunately, curing that particular malady would probably kill the patient, too. It’s one thing to say “Book sales must now be conducted on the same wholesale basis as any other commodity good, such as women’s lingerie…it’s another entirely to come up with a transition plan from the present system that doesn’t destroy every independent bookstore, and one of the three large chains.”

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