‘Fantastical claims’ and Stephen King: Penguin Random House and DOJ face off for antitrust battle

The Justice Department’s ambitious bid to stop Penguin Random House from buying rival publisher Simon & Schuster has started taking on more of the trappings of a legal thriller.

It was already one of the biggest, most unexpected antitrust cases of President Biden’s tenure—in which the DOJ is arguing that Penguin, the largest publisher, merging with Simon & Schuster, the fourth largest, will hurt industry competition, cut authors’ advances, and reduce the variety of books available to consumers. But as Penguin reinforced in its pretrial brief submitted on Friday, a copy of which was shared with Fast Company, the publishing giant believes the complete opposite: that this deal will result in higher advances for authors and more choices for consumers.

Both sides are gearing up for a showdown. Penguin’s lawyers called the DOJ’s claims “fantastical” last week, and argued prosecutors don’t even grasp “the most basic elements” of modern-day publishing. Prosecutors responded by noting that they’ll see Penguin in court with their star witness Stephen King. He’s supposed to testify about tactics publishers use to negotiate the rights to anticipated best sellers, and how a mega-acquisition like Penguin’s could impact the authors of these books. Penguin’s lawyers have said they plan to call a who’s who of Big Five CEOs, editors, and famous literary agents to testify.

Monopoly versus monopsony versus public opinion

Who prevails may hang on the DOJ’s legal strategy. The government is building a different kind of antitrust case. Typically, it alleges that a merger or acquisition will create a monopoly—a situation where one company acquires unfair control over which goods are sold, and for how much. This time, the DOJ is primarily alleging a monopsony—a situation where one company acquires unfair control as a buyer, allowing it to pay less for the goods.

But a monopsony charge isn’t John Grisham-caliber stuff. So originally, when the DOJ announced it would try to block the sale in November, the statement by Attorney General Merrick Garland argued: “American authors and consumers will pay the price of this anticompetitive merger—lower advances for authors and ultimately fewer books and less variety for consumers.”

However, Penguin’s new filing contends the government has essentially “abandoned” the last part of Garland’s claim, the one about fewer books and less variety. “The government [has] found no evidence that combining PRH and S&S would diminish competition in any consumer market,” its pretrial brief says, adding that the government’s expert now “admits that the market will remain unconcentrated.”

We are the 98%

Instead, Penguin argues, the government now seems focused on authors’ advances. But not normal authors: Its argument repeatedly looks at a dollar figure unobtainable to most writers today: advances of $250,000 and up. Penguin says this reflects not just a tiny subset of authors—the industry’s Stephen Kings—but also a trivial number of the total books published, arguing the government is talking about roughly “1,200 books acquired annually . . . 0r about 2% of all books published by commercial publishers.” The result, according to Penguin, is that the DOJ is “ignoring the merger’s effects on the remaining 98% of the market, and completely ignoring its effects on 100% of consumers.”

In a statement released with the filing, Penguin’s lead attorney, Dan Petrocelli, argues, “The Department of Justice’s lawsuit misunderstands that competitive dynamic and many others. As trial will show, this acquisition will benefit readers, booksellers, and authors alike.”

The trial is expected to last for the first three weeks of August. The one irony is that Penguin is, itself, familiar with the monopsony claim because that’s the charge it leveled against Amazon the last time the government accused the major publishers of price-fixing, back in 2010. That time, it argued they colluded with Apple to fix e-book prices. Their side ultimately lost, and Apple paid $450 million to settle, for which the appeals court labeled its transgressions “the supreme evil of antitrust.”