The proposed settlement is a shocking trip through the looking-glass.  By allowing Amazon to resume selling most titles at a loss, the Department of Justice will basically prevent traditional bookstores from trying to enter the e-book market, at the same time it drives trade out of those stores and into the proprietary world of the Kindle.  The settlement provides a gigantic obstacle to Amazon’s competitors in the e-book business by allowing Amazon to function without making a profit, something that leaves that market forbidding to anyone else who might think of entering, and a bad business for those already there.

Today’s low Kindle book prices will last only as long as it takes Amazon to re-establish its monopoly.  It is hard to believe that the Justice Department has somehow persuaded itself that this solution fosters competition or is good for readers in the long run.

Dear member,

Yesterday’s report that the Justice Department may be near filing an antitrust lawsuit against five large trade book publishers and Apple is grim news for everyone who cherishes a rich literary culture.

The Justice Department has been investigating whether those publishers colluded in adopting a new model, pioneered by Apple for its sale of iTunes and apps, for selling e-books. Under that model, Apple simply acts as the publisher’s sales agent, with no authority to discount prices.

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing. We do know that collusion wasn’t necessary: given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

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Plaintiffs filed a motion last night asking Judge Baer to rule on the fair use defense in the HathiTrust lawsuit. At issue is a mass book digitization program through which Google converted millions of copyright-protected library books into machine-readable digital files that were duplicated and distributed to university libraries and HathiTrust, an online digital repository.

This is the first motion that squarely places before a court the question of whether the unauthorized mass digitization of library books is a fair use under U.S. law.

Background on the HathiTrust Lawsuit

Authors groups from Australia, Canada, Norway, Sweden, Quebec, the U.K., and the U.S., along with twelve individual authors, brought suit against the University of Michigan, the University of California, the University of Wisconsin, Indiana University, and Cornell University and HathiTrust last fall. The lawsuit seeks impoundment of the unauthorized scans, pending appropriate Congressional action.

Last June, the University of Michigan, which oversees HathiTrust, announced plans to permit unlimited downloads by its students and faculty members of “orphaned” books (some consider works whose rights-owners cannot be found after a diligent search to be “orphans”). Michigan devised a set of procedures — including a protocol for searching for an author and posting the names of “orphan work candidates” at the HathiTrust website for 90 days – to determine whether it would deem a work an “orphan.” Several other schools joined the project in August.

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Our article from two weeks ago, Publishing’s Ecosystem on the Brink: The Backstory, and similar articles spur frequent comments online that Amazon is simply reaping the rewards of its innovation, that its growing dominance of book publishing is merely a demonstration that the free market is functioning as it should. This isn’t really what’s been happening.

Useful innovation should of course be rewarded, but we’ve long had laws in place (limits on the duration and scope of patent protections, antitrust laws, stricter regulation of industries considered natural monopolies) that aim to prevent innovators and others from capturing a market or an industry. There’s good reason for this: those who capture a market tend to be a bit rough on other participants in the market. They also tend to stop innovating.

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