PRH hits back at 'misguided' DoJ lawsuit over S&S deal in court submission

Penguin Random House (PRH) says its $2.2bn acquisition of Simon & Schuster (S&S) is “pro-competitive in every respect” and the US Department of Justice’s (DoJ) efforts to block the merger are based on a “misguided theory” that is “legally, factually and economically wrong”. 

The companies filed their 18-page response to the DoJ’s antitrust suit on 13th December in the Columbia District Court, arguing PRH's history shows these kinds of transactions actually lead to greater investments in authors, booksellers and the supply chain. It also claimed the DoJ’s suit “misdefines the market, mischaracterizes its participants, and miscalculates market shares". 

The DOJ previously said the sale could be detrimental to authors as the merged company would be the largest book publisher in the United States and would have an “outsized influence over who and what is published, and how much authors are paid for their work".  

In its response PRH claimed that the 2013 merger between Random House and Penguin “intensified” competition in the markets for books and book rights, adding: “The trade book market in the US has expanded substantially, with more titles being published every year. And publishers outside the so-called 'Big Five' have been gaining share in the retail market for book sales at the expense of the 'Big Five', driving the share of the 'Big Five' down to only about 50% of the overall book market.” 

The court documents state: “Penguin Random House plans to reinvest its savings from the merger to grow title acquisitions and continue its support of brick-and-mortar booksellers. By giving Simon & Schuster authors access to Penguin Random House’s highly efficient supply chain, their books will be more discoverable, visible, and available—online, internationally and down the street.  

“Penguin Random House’s extensive supply capabilities are increasingly important to neighbourhood book stores as they strive to compete with Amazon’s almost infinite book selection and highly efficient delivery capabilities. Expanding Penguin Random House’s supply chain to include Simon & Schuster authors ultimately provides greater income for authors and more choice for readers.”  

It also stressed the DoJ’s suit does not allege “the merger will reduce competition in the market for book sales or raise prices for consumers and accused the DoJ of seeking to protect the most successful authors, those with sophisticated agents and the most lucrative book contracts” rather than the “vast majority of authors”. It claimed the DoJ suit “invents a market for rights to anticipated top-selling books which lacks any basis in either the real world or accepted market-definition analysis”. 

It explained: “A post-merger Penguin Random House will have no power to compel authors to accept lower advance royalties for the most sought-after books. The combined company will still be competing for the rights to those books against not only the other remaining largest publishers, but also the many small and mid-size publishers that often compete in—and often win—bidding for the most valuable properties. These rivals either are already active participants in high-end bidding today, or could easily become vigorous competitors after the merger." 

It added: “The DoJ cannot show that the merger will likely reduce competition or diminish pay for book rights at any level of the market. The merger will instead allow Penguin Random House to bring enhanced distribution capacity to a greater number of authors, including Simon & Schuster’s authors. The proposed merger is pro-competitive in every way.”  

Dan Petrocelli of O’Melveny, lead attorney for Penguin Random House and its owner Bertelsmann, said: “Penguin Random House’s acquisition of Simon & Schuster is pro-competitive in every respect. It will benefit authors, booksellers, and readers for generations to come. The DoJ wants to block the merger on the misguided theory it will diminish compensation to the highest paid authors. This is not only legally, factually, and economically wrong, but it also ignores the vast majority of authors who indisputably will benefit from the transaction. We are fully confident that this merger will only enhance competition across the entire spectrum of the publishing industry.” 

PRH denied the majority of the allegations in the DoJ’s suit. In response to examples of competition between PRH and S&S for specific books, PRH frequently criticised a reliance on “anecdotal evidence” that it says is “misleading and unreliable” as well as use of “selective quotation” throughout the lawsuit which it claims is often “taken out of context".  

The company said it denies the DoJ is entitled to any of the relief requested in its suit and requested that they are “awarded the costs incurred in defending this action, as well as any and all other relief the court may deem just and proper”.

In a joint submission all parties have requested the court case begin on 1st August 2022.