Steven Semeraro, Jun 13, 2012
The U.S. Department of Justice, Antitrust Division (“Division”), has filed a high profile case against Apple and several large book publishers (“Complaint”). The case alleges that the defendants agreed to change the way eBooks were sold. Traditionally, publishers followed the wholesale model, selling books outright-both “e” and traditional-to booksellers who then set retail prices. The challenged agreement allegedly required the publishers to switch to anagency model for eBooks. Pursuant to this model, each publisher would set the resale price and pay a 30 percent commission to the retailer.
Although the Division contends that the per se rule applies, it hedges its bets. Much of the complaint reads as if the government were alleging a rule-of-reason case, articulating actual anticompetitive effects in an eBook relevant product market of which the publisher defendants possess a large share. Whether viewed as a per se or rule-of-reason case, the Complaint convincingly tells the story of traditional publishers’ scheming to increase consumer prices and restrain competition from upstart eBook publishers. That three publisher defendants immediately entered consent decrees confirms the case’s strength.
Yet, a sophisticated, doctrinally focused antitrust lawyer would have no trouble attacking (1) the applicability of the per se rule and (2) the eBook product market. The alleged agreement does not, on its face, appear to almost always harm consumer interests, as per se illegal agreements must. An agency distribution scheme could, for example, pro-competitively facilitate an industry introducing a new product into an established market. With respect to defining the market, many consumers readily substitute traditional books for eBooks, and the Division’s anticompetitive story is motivated by eBooks’ competitive impact on ordinary book sales. From a doctrinal perspective, the alleged eBook-only market thus seems too narrow.
That these points are debatable should not suggest that the government’s case is weak. But the litigating defendants will spill plenty of ink nonetheless. Already, Apple’s answer denies the existence of an eBook product market and attacks the complaint for ignoring that the agency model enabled robust competition by breaking up Amazon’s dominant position. Could skillful lawyering bamboozle a judge with limited antitrust chops? Perhaps the time has come to ask whether the per se rule and traditional market definition doctrine have become more trouble than they are worth.
Part I reviews the allegations in the complaint with respect to per se liability and market definition. Part II shows how a relentlessly doctrinal approach to criticizing the Division’s per se and relevant market allegations could distort the antitrust analysis. Part III explains that these criticisms do not undermine the case in any meaningful sense-they simply create the opportunity for distracting doctrinal posturing. This Part then raises the question: If traditional doctrine has lost its ability to simplify antitrust cases, do these hoary tools serve any useful purpose?