DoJ bids to block PRH and S&S rival bidding policy discussion in court battle

Ahead of next month’s trial, the US Department of Justice is attempting to block discussion of a company policy that would see Penguin Random House and Simon & Schuster imprints treated as external parties in auctions post-merger.

PRH owner Bertelsmann’s $2.2bn deal to acquire its rival Simon & Schuster was challenged by the DoJ last year over anticompetitive concerns, with a trial due to begin on 1st August.

The DoJ has now filed a motion referring to PRH’s declared policy over bidding between imprints, which was announced by c.e.o. Markus Dohle last year in a discussion with literary agents. Dohle said PRH and S&S imprints will continue to bid competitively against each other for books even if they are the only ones left in an auction, although the c.e.o. may step in if bidding passes $1m. 

Lawyers for the government argue discussion of this in court would present “a danger of unfair prejudice, confusing the issues, and wasting time”. They went on to accuse PRH of “ephemeral corporate promises” and called the policy “nonsensical”, likening it to “spouses bidding against each other and driving up the price for a house that they will share”.

Their motion states: “The announced bidding policy is an unenforceable, unilateral commitment that defendants assert they will adhere to should the court permit the transaction to close, but which in reality can be retracted, modified, or evaded at any time for any reason.”

The DoJ added: “The substance of the defendants’ argument amounts to ‘don’t worry about allowing us to get market power; we promise not to use it’. But competition—not ephemeral corporate promises—ensure that markets deliver competitive prices, better quality and more choices for Americans.”

In a filing at Washington DC’s federal court PRH’s lawyers said they should be able to discuss the policy, saying the DoJ wants it dismissed “not because it is irrelevant, but because it may be too relevant”. They accused the government of resorting to “silly hypotheticals” and “fantastical scenarios”.

The lawyers said an economic expert will testify that intra-firm competition can be profit-maximizing, academic literature backs this up and that PRH has a long history of encouraging “bidding competition between imprints, until advised by the agent running the auction that only PRH imprints remain”. 

They added: “PRH publicly announced its policy to agents to assure them that S&S will remain an independent bidder; betraying that assurance would have serious adverse market consequences for PRH.”

The lawyers argued: “Defendants will introduce ample evidence showing that competition between imprints is not ‘pretend’ but taken very seriously, and that such competition is profitable because it enables PRH to win more books and build better editor-author relationships. The government is free to introduce contrary evidence—if it has any—but the correct forum for resolving the factual dispute is trial.”

The lawyers went on: “To be clear, defendants do not believe that the independent S&S bidding policy is necessary to avoid any anticompetitive effects, as confirmed by the fact that PRH announced the policy to its agent-partners without even knowing whether the merger would be challenged. After all, the evidence will show that the vast majority of books are acquired in one-to-one negotiations or single-round auctions where the policy never comes into play. And even for those acquired through multiple-round auctions, PRH and S&S are rarely the final two bidders, contrary to the government’s theory that by eliminating such ‘head to head’ competition, the merger will cause substantial harm to the market.”