Why tied selling rules give the DOJ a knotty problem in the Apple e-books litigation

Do you have to sell me your house just because I asked? If you think the answer is yes, you may have something in common with a problem the Department of Justice will have in the Apple e-books litigation.

Although price-fixing gets all the headlines, another antitrust issue called "tied selling" is pretty important too. Tied selling occurs when you link two items together into a single transaction. There's nothing wrong with that in principle, but intellectual property raises all sorts of complicated issues because of the exclusive rights of an owner.


If you want to get a piece of intellectual property and the rights owner won't license to you, you're pretty much stuck. You can't just copy it because that's illegal. You can't go make your own version because you need a license to create a derivative work. You need a deal with the rights owner. As a result in the Paramount case in the 1940s (the one that broke up the movie industry) the Supreme Court said among other things that rights owners have to offer intellectual property independently and not require it to be bought in bundles.

Put another way: a publisher selling me e-book A today can't obligate me to buy e-book B tomorrow. But the reverse is also true: putting e-book A on sale today doesn't obligate me to sell e-book B tomorrow either.


The publishers didn't like the $9.99 price point. But before Apple came along they didn't really have a viable alternative. So their choice was effectively: sell to Amazon or don't sell at all. And so they did, but they didn't like it. If e-books weren't for sale, Amazon couldn't walk up and force the publishers to sell them.

Let's keep going. Remember: deals between Amazon and the publishers are book-to-book. Just because a publisher sells e-book A to Amazon doesn't require them to sell e-book B to Amazon. In fact if the publishers had tried to do a deal that looked like that, they would have been doing tied selling. And although Amazon could try to insist that it will only buy physical books if it gets e-book rights too, the publishers could always hold back. Adding or subtracting components from a deal is a negotiation point, not a legal obligation.

And on that reasoning a publisher could absolutely decide that the past is the past but the future is out in front of us and we will sell future e-books only to Apple: forcing us to sell future books to Amazon because we sold them past ones would be forcing us to break the law.

This is actually a very hard argument to contradict. It will certainly require that the DOJ show that the publishers weren't making a rational business decision by deciding only to sell future e-books to agency-pricing distributors, but rather that they were taking steps to give effect to a conspiracy. And this is why the Complaint is so full of emails and references to meetings and the like: because they demonstrate what the DOJ believes is the real reason for what would otherwise be a defensible sales practice.

On a few other issues, Apple and the publishers don't have much to argue. But this dog will hunt.


LINKS:
Complaint from DOJ:
http://www.justice.gov/atr/cases/f282100/282135.pdf
US v. Paramount:
http://scholar.google.com/scholar_case?q=Paramount+antitrust&hl=en&as_sdt=2,48&case=1569249983672754422&scilh=0