Q&A with Jonathan Kanter, Antitrust Attorney, Cadwalader, Wickersham & Taft
Recorded at Digital Book World 2016
For podcast release Monday, March 14, 2016
KENNEALLY: Welcome to a very special question and answer session with one of our keynote panelists from this morning at Digital Book World, Jonathan Kanter. He spoke this morning about The Internet Revolution and Online Platforms: The Good, The Bad, and The Monopoly. This afternoon, we have an opportunity to ask Jonathan some questions about the potential for antitrust action with regard to the power that these platforms have. He’ll tackle the problem of what actually is practical, and I think that’s a key point.
If you’ve been attending Digital Book World, you have seen several keynote speeches which have been something like wake-up calls. They’ve spoken about revolution and apocalypse, and we’ve heard about the four horsemen – Apple, Amazon, Google, and Facebook – all riding in to destroy our world. It’s very heartwarming stuff indeed. It left me, at least, yesterday morning after Jonathan Taplin spoke thinking that what we needed was to pile all our devices, all our smartphones and tablets, in the center of the room and start kind of a bonfire of the digital devices to rid ourselves of this curse. But, of course, this is not going to happen.
And what we would hope to get out of a discussion like this today is what, I think, not a fan of revolution, but someone who was very thoughtful about the implications of revolution, Edmund Burke, said. He said, “we want to make the revolution a parent of settlement and not a nursery of future revolutions.”
With that, I want to introduce and welcome Jonathan Kanter. He’s an antitrust partner based in Cadwalader’s Washington, DC, office. He heads the firm’s global technology industry team and works frequently with clients in both technology and media. Jonathan Kanter, welcome.
KANTER: Thanks for having me.
KENNEALLY: I’d like to take the opportunity, holding the microphone, to ask you the first question.
KENNEALLY: That would be, regarding the implications here of the very particular space we’re working in – if we think of antitrust historically, it’s involved railroads. There have been cases brought against software companies. But here we’re speaking about the media. And as an ex-journalist, I care about freedom of speech. If we’re asking the government to intervene, which is what we would be doing in an antitrust action, the government is somehow involved with expression, creativity, and speech. That strikes me as a dangerous area – in fact, potential for conflict itself. Can you address that? Have you thought about those concerns, the speech concerns, as they overlap with antitrust?
KANTER: Sure. Thank you. That’s a great question. Antitrust as the law tends to be somewhat clinical in nature and often is focused on the economic impact in terms of higher prices, the competitive process in general, and what it means for innovation. So generally speaking, the leading edge of the wedge for any case in the antitrust world on a monopolization matter is going to involve, really, what is the conduct doing the competitive process, and what is the effect on price – again, in a rather clinical way.
Now, having been said, there is room to factor in, depending on who you ask – I certainly believe it’s true – the importance of what people often call the marketplace of ideas. That goes to the notion of free expression. If we have a situation where conduct is resulting in less money, less innovation, less effort being put into activity that increases the output of expression, then that is certainly an effect that would seem to me, and I think to many others, appropriate to consider in the context of any antitrust analysis.
KENNEALLY: I happen to like particularly what you said this morning as the response to what we often hear from Silicon Valley folks, which is that this is about innovation. You don’t want to get in the way of innovation. And you said it’s a really important point to make that the kind of innovation that media and publishing are about is just as important. It’s the innovation of ideas, critical thinking, creative expression.
KANTER: Yeah, I wholeheartedly believe that, and I think that’s something the industry, whether it’s books, news, film, music, needs to do a better job, which is explaining that just because they’re not “new” or not Silicon Valley-based doesn’t mean that they’re not innovative and different and important. I think as an industry, it’s critical to, I think, refresh the messaging on that a little bit so that folks have a better appreciation of what it is and how hard it is and how much newness there is in terms of the type of stuff we do. The innovation isn’t just in the mechanisms and the methods for distribution, but it’s in the content itself. I think once you can establish that, then it’s much easier to take it the next step forward, which says, well, if someone’s harming that innovation – not in the distribution level, but in the content creation level – then that’s a cause for concern.
KENNEALLY: In fact, as a writer myself, I have to say I tend to think the creative part of it is the toughest part. The distribution – that’s easy, right? (laughter)
KANTER: (laughter) Well, probably.
KENNEALLY: From my perspective, anyway.
KANTER: Yeah. Listen, it’s all important, and it’s all difficult, and we need competition. We need innovation from start to finish. But what we can’t have happen is the intermediary swallow the whole. Because, again, the intermediary’s important, but it’s not creating anything. And if the success of the intermediary comes at the expense of the content creation, then there’s a problem.
KENNEALLY: Right. Well, we’re talking about monopolies here, and I don’t want to become a monopoly myself and monopolize Jonathan Kanter. So I want to turn to you here in the room for your questions for him. You mentioned about the practicalities of antitrust law – this is not a very transparent part of the law. It approaches a kind of intentionally vague area, I think, because it leaves a lot to the judges themselves when they make rulings on the cases. So if you’re looking for clarity, Jonathan Kanter can help provide that. Do we have some questions, then, from anyone here?
ROSENBLATT: I’m Bill Rosenblatt from GiantSteps Media Technology Strategies. I do a lot of work in copyright, and there’s an overlap which leads me to be very curious about the world that you occupy. There’s been a theory that’s been put out there that says that the industry of distributing content is like a supply chain, and content is the input goods to the supply chain. The advantage that companies like Google and Facebook have is that they get so much of their input goods for free from users. Commercially minded authors and publishers become this narrow slice of entities that want to be paid for their content, as opposed to everybody else who doesn’t care about being paid for posting stuff on Facebook and Google and so forth. I’m wondering if this is something you’ve thought about and if you think that this has a material effect on how these big tech companies can command the marketplace for published content.
KENNEALLY: Can I say – what that sort of comes down to is publishers who are in this room, they don’t count.
KANTER: It’s a great observation, and it’s one that you hear all the time. In fact, I’ve had this discussion both with regulators here in the United States and in Europe, which is, at what point is it a copyright problem? At what point is it a competition problem? The answer is it’s both, and you can’t solve the competition problem with copyright and vice versa.
Copyright is really about remuneration for intellectual property – I own something. You need to pay me for it. It’s, by nature, a really bilateral thing, the person who takes it versus the person who owns it, whereas competition is looking at the ecosystem more broadly. So any copyright action is really just going to settle the dispute between Person A and Person B, whereas a competition analysis needs to take into account the effect on the entire ecosystem and the economics of the market as a whole.
But your point is a very good one, which is that, like anyone else, if you’re in a distribution business, you want to get your input for as little money as possible. The internet’s sort of an interesting place, because a lot of stuff is individual-driven. A lot of it’s driven by folks who don’t necessarily expect to get paid, sort of the amateur journalist or the amateur author, versus the professional author, the professional journalist, the professional photographer. Those are the folks who are investing time and money – substantial amounts of time and money – into developing their product.
I had this discussion with a US senator the other day in connection with images and photography. Yeah, people can take pictures with their iPhones, and that might be interesting for some. But if you’re talking about professional photography, you’re talking about making investments in warehouse space in your local economy to take a picture, models. You’re talking about investments in lots of different types of equipment and technology in order to process and develop a really professional photograph, whether it’s for journalism or simply for creativity. Those investments can’t be made unless there’s proper remuneration.
But the problem is that the platforms – and I’ve seen it happen – get so big that they can demand supercompetitive prices. This will happen in news, for example, where someone might say, you give me your news for free, or else I’ll demote you in the search engine. You can see it in books, where if you want to appear high up in the store, you need to give things to me on my terms. These kinds of issues are not new. They’ve come up in the context, for example, of cable versus programmers for years. The difference is these platforms are not local. They’re not limited to one small local market. In terms of their domain, they’re it. If you’re not there, you can’t have a viable business, because you’re going to foreclose yourself from too many consumers.
So it’s a long way of saying there is a lot of overlap, but it’s also important to keep the issues separate, because they are distinct. Solving the copyright problem will not solve the competition problem, because coerced consent is never going to be a copyright problem. If you can force someone to give you the content on the terms that you demand, it’s never going to be a copyright problem, because you’re just going to have to agree. And once you agree, the copyright issues are gone.
KENNEALLY: Right. You mentioned that the Europeans are more inclined to see that as a potential problem. I think I have that right, that this notion of abuse of the dominant position is there. Why are they more inclined to do that, and why is this country less inclined?
KANTER: Yeah. This country used to be far more active on what we call monopolization cases. In the last 15, 20 years, there’s been a lot of shift in not just the law, but really in the policy from a government perspective – folks familiar with the Chicago school of economics, where the risk of what they call a false positive, getting it wrong, is great, or where you somehow disrupt the flow of the free market. Those are all important things, but sometimes you can go too far in one direction or too far in another. Right now, that pendulum has swung probably, at least according to some – I would be in that camp – too far toward hands-off. Because at the end of the day, antitrust is not supposed to keep the market from functioning in a free and open way. It’s supposed to help the market function in a free and open way by removing clogs on competition.
The Europeans happen to be in a mode right now where the pendulum has swung the opposite way, and they recognize from a policy perspective the need for intervention. Things always come back and forth, and it will here, too. But right now, there’s much greater willingness to intervene in Europe than there is in the United States.
KAUFMAN: Roy Kaufman from Copyright Clearance Center. When you look at the antitrust cases in the US – obviously the Apple/Amazon and things like that – the platforms, particularly Amazon in this context, seem to me they’re being analyzed as resellers – basically a platform where a publisher goes to resell. With Amazon especially, it’s also a publisher. Vertical integration of Amazon makes it kind of interesting, because it’s not just – some might argue, well, it’s abusing its dominant power as a reseller. But it’s also doing that because it has subordinate businesses that are direct competitors of the publisher business. To the extent you’re aware, how much of this is being discussed by the regulators and the courts, to not just look at it as a reseller and an outlet, but also look at the vertical integration and how that might lead into some of the market distortion?
KENNEALLY: Jonathan, if I can say just for the audience – Roy has an unfair advantage. It’s not just that he’s at Copyright Clearance Center, my employer, but he’s an attorney, as well. So he was able to ask such a detailed question.
KANTER: Sure. As you know, lawyers tend to like to put things in little boxes. That’s one of the reasons why this issue comes up as a reseller. One of the reasons I tried to frame things the way I did this morning is because I think it’s exactly what you said, which is that not only are you a platform, but you compete on the platform. Here in this case, it would be Amazon as a publisher. That creates your incentives, or it creates a change in your incentives. It affects your incentives. Those are the kinds of things that need to be evaluated.
Now, one of the challenges from a legal perspective is there tends to be, when things are considered – there’s a distinction antitrust lawyers will make, and I will promise not to be too legalistic in this discussion, because we’re really trying to focus on practical impact – between what they call horizontal and vertical. Horizontal will mean direct competitors. Vertical will mean different points in the supply chain. Some of that Chicago school economics I was talking about earlier tend to think vertical integration and vertical restraints, as they call them, are not so problematic, or rarely problematic. I think there’s another school of thought that thinks that they’re highly problematic.
At the end of the day, it really will depend on the extent to which the company is abusing its platform and the competitive impact. So it’s highly fact-specific in any of these situations. But some of the things you can look for to determine whether it’s a problem – is the platform restricting the freedom of, let’s say, publishers on its platform to go elsewhere?
A tried and true example of something that fits squarely within the bounds of an antitrust issue might be if a company says to publishers, I’m dominant. If you want to be on my store, you have to publish through me. You can’t publish through anyone else. In that instance, it still depends on the facts, but now you’re restricting the freedom of people to work with competitors. Those are the kinds of things that tend to, again, fit squarely. It’s not to suggest that other types of restrictions aren’t a problem, too. But again, things that exclude competitors, that foreclose competitors, tend to get more attention.
KENNEALLY: Any other questions, then, from our audience? Jonathan, while they think of a question, I’m going to ask you to respond to something we heard yesterday. Jonathan Taplin gave the keynote address, and he provided kind of a quick history of the internet. He rewound the tape all the way back to the late 1960s, Stewart Brand and others. Their internet vision was a place that was decentralized, unrestricted, and so forth. And he identified a point in the 1980s when that flipped, and there was what he called a kind of libertarian overthrow. It was this view drawing on all kinds of principles, but Ayn Rand among them, that it’s not what you’re going to let me do, but it’s what you’re going to stop me from doing that drives so many of these companies. Beyond that is the point that many of them have chosen to – and you made this point, as well, this morning – have chosen to sacrifice profits in order to gain market share and to build the kind of dominant platform that they’re aiming to have.
This is a hard point to make, but is there something inevitable about that, though, because of the internet? Is that kind of drive to build the marketplace out so all-consuming that price and all the rest of the other considerations typical in a marketplace don’t matter? In other words, is this a case that’s almost sui generis?
KANTER: Every case is sui generis. Every case is unique. But no case is unique, right? This is, again, one of the things – yes, the internet’s cool. Yes, the internet creates opportunities. But nothing is for free. The companies that have the platforms and talk about free and open are the companies that have the largest market cap in the world. That’s not a surprise, and that’s not a coincidence. So it’s really important when thinking about – follow the money is one adage that a colleague of mine once taught me when looking at these kinds of markets. Follow the money. Figure out where someone’s making money. And then if you start from there, you can usually back out where all the problems are.
Again, we talked this morning about how antitrust laws at least tend to promote lower prices. The legal system’s reluctant to condemn somebody for offering a low price or a free price. On the other hand, it locks people in. It makes it harder for somebody to come and compete, or it lowers the incentive for someone to invest to try to compete with free. So you have to understand the implications, which might mean exploitation of that market power somewhere else. Yeah, searches might be free, but advertising on searches – not free.
KENNEALLY: And when you think about making money, though, this is a new way to make money. It’s making money for shareholders. They’re not really worried about making money as a company at this point. They’re worried about building out the platform.
KANTER: That’s certainly true with Amazon. They certainly tend to focus that way. Some of the others make money hand over fist when it comes to advertising or hardware. It differs from company to company. But one of the characteristics that you’ll see, and I’ve observed this a lot, is some of the platforms will sort of force everybody into competing on their area of strength. By saying, OK, you can’t charge for search or social networks or any of these other things, you’re forced to try to compete with them on advertising.
Advertising is a highly scale-driven business. It’s very difficult to attract the kind of advertisers. It’s actually very difficult to operate these ad platforms that sell advertising in massive quantities. They’ll try to push you into their model. It’s by design, and it makes disruption for them less likely.
HASKELL: I’m Michael Haskell with Columbia University Press. I was wondering if you thought, as these businesses expand, if they need looking for new areas to dominate, and so they’re getting into like the Fitbit that you mentioned – more metadata about our personal interests, and the driverless car and drone delivery and areas that the government is used to regulating more strongly in terms of public health and the roads and airspace, is that more likely to increase government intervention, or will the government still be just told to stay in its place?
KANTER: Yeah, that’s a very good question and a very important question, and I’ll probably sound a little bit grim. Being in Washington, one of the problems is that many of these companies have such tight control or so much influence over the government. They’re very good at pushing for regulation when it helps them and then pushing against regulation when it hurts them. Any time someone talks about trying to impose regulations, whether it’s cars, drones, or anything else, you’ll hear it’s going to break the internet. Those kinds of platitudes are, at least for me, quite tired and old.
I’m certainly not a fan of more regulation than is necessary. I’m not suggesting we need to have regulatory regimes that make it impossible to innovate and slow folks down. On the other hand, when it comes to public safety, when it comes to shared resources like the sky for drones or airwaves and things like that, you have to have some rules of the road. Or driverless cars – literally, rules for the road.
I think that we’re just really on the dawn of that world, and it will become quite apparent sooner rather than later that there’s going to need to be some regulatory structure and process – just enough to make sure there are rules of the road. It’ll happen. I think privacy and data is one that’s become very dangerous. You can see it already with the very contentious debate regarding the Apple phone and the terrorist acts in California. There are legitimate points of view on both sides of the debate in terms of privacy. But the fact that a small number of companies have access to so much data, information, is scary, and it makes them very powerful in terms of not just the control they have over citizens, but the control they have over the government. Now the government can’t do its job unless it can get those companies to give them what they want.
Again, I’m not trying to suggest that all of these companies are bad. Most of them are not. They’re just trying to build things that they think are cool and make money and do all the the things that are good. But in the absence of any kind of regulatory structure or regime, it’s going to be challenging.
And as an antitrust lawyer, the problem is antitrust is enforcement-oriented. Antitrust laws don’t regulate monopolies. They don’t say, well, if you become a monopoly, you have to do X, Y, and Z. It’s really episodic. It’s essentially saying, OK, you violated a law by engaging in certain conduct, and I’m going to go enforce the law and go out and get you. It’s not a criminal violation, but it’s a civil violation. In an enforcement-oriented regime, particularly on things like privacy and antitrust, you’re relying on enough cases brought to create a deterrent and let the courts create rules of the road. But for certain things – the use of data and others – that’s likely to be a very challenging approach, and something more structured and regulatory, kind of like the FCC does with cable and net neutrality, for example, is probably going to be necessary.
Interestingly, most of the companies we’re talking about were very much behind and proponents of net neutrality, because it benefited them. But if you talk about platform neutrality and nondiscrimination on their platforms – whoa, that breaks the internet. You have this paradox. Again, it’ll only last so long.
KENNEALLY: Jonathan, you’re based in Washington, DC, and we’re here in New York, and I think pretty happy about that as things stand today. But you have an insight into the minds of the regulators. Occasionally we see organizations like the American Booksellers Association essentially call for a letter-writing campaign that says, you know, write your congressperson and tell them they need to take Amazon to court for antitrust violations. Does the DOJ pay any attention to that? How do they respond if they’re on the receiving end of a letter-writing campaign?
KANTER: That stuff does matter, and I think it’s very valuable to do that, because there’s always prosecutorial discretion. Folks need to prioritize what they’re working on. And the more voices that come out, the better. So I don’t want to discourage that. In fact, I would encourage that.
On the other hand, when you’re focused on something that’s antitrust-oriented, it’s important to convey things in the right way. Because what the antitrust regulators will tell you is there are limits as to what I can do. I gave a talk similar to this at the New America Foundation in Washington a couple months ago. Amazon was the subject. Afterwards, I got a lot of questions from folks saying, oh, we went to the DOJ, and we told them X, Y, and Z, but they were like, well, there’s nothing we can do about that.
A lot of the reason why that happens is because folks will go in or write letters that say, oh, they’re really big, and they’re exploiting their market power by squeezing publishers or doing something else. From the agency’s perspective, they can’t act on that. What they’re looking for – they’re looking for specific types of acts, exclusionary acts that, again, restrict the freedom of folks on the platform to work with rivals, that are targeting competitors or folks who don’t comply with their competitive demands. So to be most effective, even in those letter-writing campaigns, is to tee it up in a way that fits into what the DOJ is looking for.
You can think about the Microsoft case – sort of the most famous, at least in the last 50 years, antitrust case involving software. There, what was a problem wasn’t that Microsoft was big. And at the end of the day, contrary to what most people think, the court never held Microsoft liable for tying its browser to the operating system. But what it was doing was it was going out to computer manufacturers and saying, OK, you have to make sure that a certain percentage of all your machines are running Windows. It had to do with certain types of interoperability restrictions that made it difficult for rivals to work on the operating system. It had to do with the way they designed the code that really had no benefit other than to make it difficult to remove the product or put another product on the machine. It had to do with going to, again, the computer manufacturers and saying you have to put our browser – not tie it, but requiring them contractually to put the browser on the operating system.
That’s all history, and those aren’t issues today. But those are the kinds of things that the court focused on, was what they call the “bad acts.” And so anybody who’s thinking about trying to approach regulators, whether it’s through a letter campaign or a visit or even approach senators and Congress folks and ask them to approach the DOJ or the FTC, it’s usually helpful if you have some of those “bad acts” in mind and enumerated so that it looks like more than just complaining about big.
KENNEALLY: More than just whining, so to speak. Yeah.
RASENBERGER: Hi, Mary Rasenberger with the Authors Guild. Thank you very much for your presentation this morning. I thought that was very, very good. As you know, we’ve been actively trying to talk to the Department of Justice and others and receiving just the responses you just described. The problem is that we don’t have those kind of tying – we don’t have that kind of evidence. One of the reasons we don’t is that we don’t have the ability to do that kind of investigation. So that’s one of the things that we’re asking Justice to do is to investigate, to try to find out if Amazon is, in fact, doing those kind of things. I’d love to find out from you what you think that we might be able to do to push the ball forward.
But it also seems to me that the way Justice is looking at antitrust in our courts seems very outdated. The issue today is that Amazon owns all of the data. Nobody can compete with them. Publishers have to accept the marketing terms, or their books won’t be discovered. As a practical matter, given what evidence we have, what do we do? And then the other question is, isn’t there a role for the FCC in any of this because of the central place that books play in our knowledge economy and media?
KANTER: Great questions. In terms of what you can say, a lot of times people have way more information than they think. If you talk, for example, to authors about their experiences and you’re focusing on the right questions, you can usually extract enough information to help put a story together. It’s really about tapping the resources. No one at the Department of Justice or elsewhere thinks or is expecting any particular complainant to come in and have the case proven from start to finish. It’s just about putting the concerns in the framework of how they think about it – saying, OK, they’re big. They’re dominant. And this is what the “market” is. There are a number of boxes they have to check. Here’s how they are limiting the freedom of our authors to work with each other.
For example, Kindle publishing – they’re requiring exclusivity with respect to Kindle publishing. You talk about how they’re dominant here. They’re requiring exclusivity with respect to Kindle publishing. And then they favor Kindle publishing in their store, as opposed to – and then demote others, even when they’re better. You have that kind of pattern of facts, you can put that into a framework that the antitrust regulators see as somewhat familiar and the framework that they view as being legally sound, and then they can start playing around with investigating it. But to get them biting, you have to think the way they do, which is as lawyers who are putting things in boxes and have to check those boxes.
In terms of your other questions – are they outdated? Maybe. People will say the laws are outdated. People will say that the policy that the agencies are using to apply the law is outdated. And it could be a little bit of both. But – again, this is why I emphasized so much this morning – to tee this up, you have to explain the economics of these markets, and you have to explain that it’s not simply like a bricks-and-mortar retailer and publisher and purchaser relationship. These are platforms. They are complex platforms. There are many different dynamics. It’s really critical to explain how the economics of those markets work, so then you can peel back the effects of the conduct.
That’s where I do think the agencies have work to do in terms of modernizing how they approach these issues, because I’ve seen it time and again where they’ll try to take cookie-cutter analyses that they have been applying to markets for years that are just different and aren’t as translatable to some of these highly dynamic, highly complex multisided markets.
The last question, the FCC – although you may be right, the FCC will take the position that their mandate really is limited to effectively the infrastructure. So it’s the cable lines, the last mile, if you will. People often talk about what they call the edge or the online services. But increasingly, everything resides in the edge. Everything’s an online service, whether it’s search – frankly, DVRs now are online services. Most of those DVRs will be run out of the cloud, and the information will be on the cloud as opposed to on the set-top box. But there would have to be a substantial change in the law for the FCC to have jurisdiction. So that’s not likely to be something that will – that’s not going to be an easy path.
To take things full circle, absolutely. The more that people in Washington are sensitized to these issues, sensitized to the fact that they are modern markets that need to be looked at in a modern way, and that the agencies are taking an approach that was built for 1980 and trying to apply it to 2016 after the internet revolution is a problem.
The other thing I’ll often hear – and again, there’s some truth to all of this, right? Nothing is black and white. But that these are highly dynamic markets. They move quickly. Regulators shouldn’t be getting in the way, because otherwise they’re going to stop the kind of innovation and break the internet. Yeah, there’s some truth to that. The other side of that is these markets are dynamic, which means they tip quickly. And if you blink your eye, you’ll have a situation where you have a big, dominant platform, and the entry barriers are so high to unseat that platform that the market is kind of gone. Explaining more of those things to policymakers is helpful.
I had dinner the other night with a US senator who’s very focused on the modernization of antitrust and how antitrust is going to be approached. The senator asked, well, what do we need? Do we need new laws, or do we need a spine transplant for the folks who are enforcing the laws? Back at the senator, I said, let’s start with the spine transplant, because I think we could probably get a lot of what we need done with just folks who are willing to take an approach that is more realistic and more attuned to the market realities. If, after that, it turns out that there are still things that need to be changed, tweaked, then yeah, maybe there’s a legislative solution. But that’s tough, especially in Congress these days. The spine transplant is not a bad place to start.
KENNEALLY: Jonathan, I’d love to take a guess at who that senator was.
KANTER: I’m not telling. (laughter)
KENNEALLY: I didn’t imagine you would. We know who it wasn’t. Let’s put it that way. But I have a guess at who it could’ve been. Do we have any final questions, then, for Jonathan Kanter here? OK, sure.
KANTER: Yeah, I’m happy to answer. And if folks have – obviously, it’s a Q&A, but I’m happy to – if there are specific things that folks have questions about – is this the kind of thing that’s legal or not? Again, the devil’s always in the details, but I’m happy to give directional answers to things like that, too.
PETERSON: Hi, Lenny Peterson from Hazelden Publishing. I was curious a little more about pricing controls that some of the larger distributors are putting into place or have tried to. One of the large ebook distributors, for example, has been pushing agreements that set your ebook list price based on your print list price at a certain percentage, that it can’t go – basically putting a ceiling on your ebook price. Is that legal? It’s not totally fixed pricing, because you can go lower, but you can’t go higher than a certain number.
KANTER: Vertical price-fixing is, I think, what you’re describing, which is what it used to be called. The more modern term for it in antitrust is what they call resale price maintenance, which is where somebody high up in the supply chain will dictate what someone lower down in the supply chain can charge.
As a general rule, that used to be just completely illegal. The Supreme Court has pulled that back, and now it’s generally, more often than not, OK, at least on a federal level. A lot of the states did not like that decision, and so a lot of state enforcers have provisions that either keep those kinds of restrictions illegal or invalidate contract provisions that do that.
That having been said – again, this is taking a traditional look at things, but there have been situations where, if you’re talking about price ceilings as opposed to price floors, the laws are generally more forgiving on ceilings, because it’s basically keeping prices from going too high. The law tends to be more focused on restrictions that keep prices from going low.
Now, the devil’s in the details, because you saw in the Apple ebooks case, it was just really about folks coordinating on what pricing model to use, which in effect changed the environment for full-throated competition in pricing. It does depend on the situation. Generally speaking, if someone higher up in the distribution chain tells someone lower down in the distribution chain that there’s a price ceiling, it’s going to be a hard case to win.
KENNEALLY: With that, I want to thank Jonathan Kanter for taking on your questions today about antitrust as it applies to the four horsemen of this new apocalypse. Jonathan Kanter, thank you so much.
KANTER: Sure. No, thank you very much. I appreciate your thoughtful questions.
KENNEALLY: I’ll just say that some philosopher said that revolutions are never easy, especially when it comes to making some blockheaded people change their minds. I think that that’s really what it becomes about. We sort of get stuck in our corners and people who view the other side as blockheaded. You’ve made a very nuanced take on this, and I’ve appreciated that very much. So thank you, Jonathan Kanter.
KANTER: Sure. Thank you again.
KENNEALLY: And thank you all for joining us today.