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A Message from Macmillan about being Sued

11 April 2012

From Macmillan CEO John Sargent:

Dear authors, illustrators and agents:

Today the Department of Justice filed a lawsuit against Macmillan’s US trade publishing operation, charging us with collusion in the implementation of the agency model for e-book pricing. The charge is civil, not criminal. Let me start by saying that Macmillan did not act illegally. Macmillan did not collude.

We have been in discussions with the Department of Justice for months. It is always better if possible to settle these matters before a case is brought. The costs of continuing—in time, distraction, and expense— are truly daunting.

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

When Macmillan changed to the agency model we did so knowing we would make less money on our e book business. We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there.

It is also hard to settle a lawsuit when you know you have done no wrong. The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.

Other publishers have chosen to settle. That is their decision to make. We have decided to fight this in court. Because others have settled, there may well be a preponderance of references to Macmillan, and to me personally, in the Justice Department’s papers – often without regard to context. So be it.

I hope you will agree with our stance, and with Scott Turow, the president of the Author’s Guild, who stated, “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support”.

Since we are now in litigation, I may not be able to comment much going forward. We remain dedicated to finding the best long term outcome for the book business, for Macmillan and for the work you have entrusted to our care.

Thanks.

John

Via Tor and thanks to Magdalene for the tip.

Big Publishing, Legal Stuff

34 Comments to “A Message from Macmillan about being Sued”

  1. “When Macmillan changed to the agency model we did so knowing we would make less money on our e book business.”

    But we also knew you would have to pay more, that was all that mattered to us….

    (Yeah, okay, I know he wasn’t addressing the customers, but still…)

  2. Oh he stands with Scott Turow. Well that makes it all better!

    ROFLOL!!!

  3. “the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model.”

    P.G.

    Now there’s a luscious phrase, “could have allowed,” indeed. So, hang on, the DOJ are batting for Amazon and not justice?

    Where de factoids, Macmillan?

    “Since we are now in litigation, I may not be able to comment much going forward.”

    You ain’t said sod all so far.

    We await the mercy of the court on your lone activity.

    Odd the way you all made the decision at the exact same time.

    brendan

  4. I notice he defines “those who sell books for a living” as book stores of varying sizes. No inclusion of authors in that.

    • Yes, CherylS, maybe if he stayed on his excercise bicycle a little longer he would’ve been inspired to include authors in that.

  5. If I’m talking to Bob and he says “Let’s go rob Mrs. Smith, she’s got a ton of cash stuffed in her mattresses; she’ll never know the difference.” Saying “I’ll think about it,” and going home and getting on my bike and finally concluding “sure! I’ll help Bob rob her!” and then going off with Bob and robbing her, is still collusion. It doesn’t matter where I make the decision, or how alone I was, only that I made it.

    And another winning bit of brilliance from Mr. Turow as well, I see.

  6. “We still believe in that future and we still believe the agency model is the only way to get there.”

    Then they need to hire people who can come up with more than a single option – particularly when that sole option is dependent upon collusion and attracting federal antitrust attention.

    “After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.”

    According to the DOJ complaint, he wasn’t exactly “alone” when he came up with that decision. Maybe the other CEOs weren’t sitting in his lap while he pedaled his little exercise bike, but their voices were echoing in his head – balanced only by a small, still voice crying in futility, “Don’t do this, John! This path shall lead to allegations of illegal collusion!”

    Alas, four CEOs and a bevy of advisors can out-shout a quiet voice of conscience.

    • I’m not sure he had a conscience shouting about the DOJ and collusion. It might have been shouting at him about other things, but I can’t really imagine any CEO actually going through with something like this if he thinks that it could read as very likely to get his company slapped with an antitrust suit.

      • I’ve no doubt he was well-aware of the potential for antitrust allegations.

        This kind of decision wouldn’t have been lonely.

        It involves legal and other advisors, and they all weigh in on pros and cons and potential risks.

        He was aware of it.

        But decisions are made in companies all the time to press forward when the potential upside is great enough or market conditions pressing enough to risk exposure.

    • Ah, the loneliness of the CEO. Such pathos.

  7. I like how his argument is basically stating that an “anything goes” strategy is necessary to fight Amazon. Sorry, Mr. CEO. Price collusion is still illegal, no matter how much you try to justify it and no matter for what reasons.

  8. If MacMillan wasn’t part of this, why did they agree to the agency model when “we did so knowing we would make less money on our e book business”?

    Why would they make this “less money decision”?

    “We made the change to support an open and competitive market for the future, and it worked.”

    Wouldn’t an “open and competitive” market offer several pricing options where retailers would be able to get different levels of discounts in order to offer various degrees of prices to their customers?

    Sherrilyn Kenyon’s NO MERCY (took a best selling romance title in a long series)

    Macmillan’s site
    eBook $7.99 – mm $7.99
    http://us.macmillan.com/book.aspx?isbn=9781429929356

    Amazon Kindle $7.99 – mm $7.99
    http://www.amazon.com/No-Mercy-Dark-Hunters-ebook/dp/B003P8OZ64/ref=sr_1_10?s=digital-text&ie=UTF8&qid=1334164482&sr=1-10

    Barnes and Noble – Nook $7.99 – mm $7.99
    http://www.barnesandnoble.com/w/no-mercy-sherrilyn-kenyon/1100162256?ean=9781429929356&itm=10&usri=sherrilyn+kenyon+dark+hunter+series+in+order

    iBooks $7.99

    I don’t see anything “open” about the same product being sold at the same price everywhere.

  9. This guy is so delusional. Helpeful hint from the real world: When federal prosecutors sue you, you have by definition done something wrong–you got yourself sued! By the feds! That’s expensive! Smart businesses avoid it!

    And I love how he’s still, at this very moment, maintaining that they would have had no options if Amazon had begun engaging in predatory monopoly business practices. None whatsoever. They couldn’t have sued themselves, and the antitrust guys over at the DOJ clearly have no interest whatsoever in that sort of thing….

  10. The market opened up as a natural movement of business, not because of the agency pricing model.

    Amazon pioneered the ebook adoption, naturally they had a high percent of ebook business coming out of that. But as other retailers competed, that would naturally go down, no matter what pricing model was used.

    Amazon wasn’t a monopoly and won’t be one. And if they do actually get there, guess what? They can be sued and broken up by the government. Case solved. What the publishers did was to open themselves up to this instead of being able at some point to peg it on Amazon.

    Not smart, they are.

  11. “It is also hard to settle a lawsuit when you know you have done no wrong. ”
    Is it? Is it really all that hard? How about asking the small (and large) businesses who have someone fall and “hurt herself” in their store or the restaurants who have a customer “find something disgusting” in the food and sue for mental distress? Their lawyers almost always tell them to settle because it’s way cheaper than going to court. And they actually have done no wrong.

  12. I think it’s safe to say that if all the other defendants named in the suit are settling, you, the last man standing, are pretty much screwed. (Penguin is…I don’t know. Also probably screwed.)

    Anyone have any idea how much this is going to cost authors who are still under contract with these publishers?

  13. The bad thing for Macmillan and the other settlement holdouts is that the agency model falls apart once the majority of sales occur on the wholesale model. I’ll try to elaborate.

    If everyone except Macmillan settles, and Macmillan even wins its case or somehow gets to keep the agency model, it will be a dead man walking. Imagine it with an agency model whereby its titles are priced well above anyone else, even the other Big 6 publishers. It will lose sales to the lower priced titles, but here is the other kick in the rear–even when it does sell a title, it will probably makes less than the other publishers who are back on the wholesale model.

    The agency model holding high prices only works when the majority of the market agrees. Keep the prices even across the board, and people will have no choice but to buy them at that price. Remove half the market from that method of selling, then the whole deal falls apart.

    If three (that is my magic number in this case) of the publishers settle and ditch the agency model, then agency is dead. Some may hold onto it, but once they realize their higher prices are killing them–because those higher prices all of a sudden stick out more–then we’ll see a lot more of the wholesale model coming back into play.

    • Absolutely. Plus the whole idea behind agency pricing was to slow the adoption of e-books and to prevent Amazon from aggressively promoting self-publishing.

      Fail and fail.

  14. TELEPLAY, MASON PERRY, ATTORNEY AT LAW
    EPISODE 21 “THE CASE OF THE PERLOINED PUBLISHER”

    THE SCENE: Federal Courthouse, Los Angeles
    THE LAWYER: Mason Perry, Counsel for the Defense
    THE PROSECUTOR: Hammond Burger, DA
    THE DEFENDENT: John “Mack the Knife” Sargent, Macmillian CEO
    THE CHARGE: Anti-Trust Collusion and conspiracy to commit mopery

    BURGER: At this time, the State would like to call its first witness: the excercise bicycle in the basement of John Sargent

    BALIFF: Do you swear to tell the whole truth etc.?

    EXCERCISE BIKE: I do.

    BURGER: Can you tell the court your whereabouts on the 22nd of January 2010, a little after 4:00.

    BIKE: Let’s see … Jan 22, Jan, 22. That was a Sunday, right? I was on the French Rivera —

    BURGER: Your Honor!

    JUDGE: Witness will refrain from wisecracks.

    BIKE: More like WIDEcracks … you see the butt on that defendant?

    [JUDGE BANGS GAVEL]

    BIKE: I’m an excercise bike, where do you think I was. I was down in Chumley’s basement. Like I could go anywhere. That’s the point of an excercise bike. They don’t go anywhere.

    BURGER: And at any time during that day was the defendant down in the basement with you?

    BIKE: You kidding? Just look at the guy. Does he have “excercise bike” written all over him?

    MASON PERRY: Objection!

    BIKE: You’d object, too, if he tried to sit on you!

    BURGER: So at no time was the defendant excercising and very lonely-ly deciding the Future of Publishing as he claimed.

    BIKE: Be might convient if he was. No witnesses, ‘cept for me and you can’t exactly call a bike to the witness stand.

    MASON PERRY: Objection!

    BURGER: I have here a copy of the NFL playoff schedule for Jan. 22, 2010. New England vs. Baltimore 3 PM EST and New York Giants vs. SF 6:30 PM. Wasn’t it actually true the defendant was upstairs watching the playoffs and not riding his bike as he claimed?

    BIKE: With New York playing, he’s peddling away on his little excercise bike down in the basement thinking about books? You kidding me?

    ["MACK THE KNIFE" SARGENT STANDS UP, VEINS IN HIS NECK POPPING]

    SARGENT: Alright, alright! I did it! I confess! I would have gotten away with it, too, if it hadn’t been for those meddling 49ers and their dog!

    MASON PERRY: Oh, well. You can’t win ‘em all.

    • Very nice, Lee.

      • To be fair, photos of Sargent show this skinny beanpole who looks to me as if he spends ALL his time on an excercise bike. (To an excercise bike who gets sat on, skinny is a relative term.) It was Sargent’s recitation of his exact, precise whereabouts when he made his decision that amused me.

        (I’m currently plowing through the Perry Mason DVD sets (on Season 5 right now) and in the show those who make such precise statements usually have cooked up a fake alibi.)

        That being said, most New Yorkers with the Giants in the final play-offs for the Super Bowl would have been in pre-game mode, not working out in the basement. Just sayin’.

  15. John Sargent is a fool. Here’s a helpful hint for other CEOs out there. When you get sued by the DoJ, stop talking. If you feel like you have to say something, at the very least, do not say things that make you look guilty. DoJ lawyers are not stupid. They can read between the lines. And they ignore your protestations of innocence. Think about what you must sound like to someone who thinks you are guilty:

    When Macmillan changed to the agency model we did so knowing we would make less money on our e book business.

    Publicly traded companies don’t admit to deliberately making less money on a substantial part of their business without a good reason. They generally get sued by their stockholders. You might as well just paint a huge bullseye on your back.

    • But they painted that bullseye on a long time ago! That New Yorker article? “We’re afraid we might get into trouble if we all act together. So we’re all going to act together!” And the Jobs comments? It’s like, “Yoo-hoo! Mr. Prosecutor! Over heeeere!”

      I mean, yeah, all that stuff may be inadmissable in court, but it sure was an invitation to the DOJ to come on over and see if they could find something that WAS admissable in court!

  16. Seems to me this guy was better off before issuing this memo. Bet his lawyers are fashioning a muzzle for him which should have been in place long ago.

  17. If he honestly believes that Macmillan did not collude, then I think it’s perfectly reasonable for him to fight instead of settling.

    Okay… maybe I just want an excuse to make some popcorn.

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