`Case 1:21-cv-02886-FYP Document 196 Filed 11/15/22 Page 1 of 80
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`Plaintiff,
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`Vv.
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`Civil Action No. 21-2886-FYP
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`
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`UNITED STATES OF AMERICA,
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`BERTELSMANNSE & CO. KGaA,
`PENGUIN RANDOM HOUSE, LLC,
`VIACOMCBS,INC., and
`SIMON & SCHUSTER,INC.,
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`Defendants.
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`AMENDED MEMORANDUM OPINION
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`John Steinbeck famously said, “I guess there are never enough books.” He apparently
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`meantthat in the figurative sense, as a commenton the powerof booksto educate, to enrich, and
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`to explore. But today, his statementalso rings true in the economic sense: Theretail market for
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`books in the United States was over $11.5 billion in 2019 and has only continued to expand.
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`People want to read. And book publishers have the enormous powerandresponsibility to decide
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`which books — andtherefore which ideas and stories — will be made broadly available to the
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`public. A publishers’ marketplace of ideas is also a marketplace of booksales, production costs,
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`and marketshare. It is this commercial market, so inextricably intertwined with the intellectual
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`life of our nation, that the Court examinesin this case.
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`Penguin Random House (“PRH”)is by far the largest book publisher in the United States.
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`Owned by Bertelsmann SE & Co. KGaA(“Bertelsmann”), an international media and services
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`company, PRH annually publishes over 2,000 new booksin the U.S. and generates nearly $2.5
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`billion in revenue. Simon & Schuster,Inc. (“S&S”), owned by the media giant Paramount
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`Global (formerly ViacomCBS),is the third-largest publisher in the U.S. S&S publishes about
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`1,000 newtitles yearly and reported over $760 million in net sales in 2020.
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`In March 2020, ViacomCBS announcedthat it planned to sell S&S. Following a multi-
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`round bidding process, Bertelsmann and PRH signed an agreement with ViacomCBS and S&S in
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`November 2020 to purchase S&S for $2.175 billion. The acquisition of S&S would cement
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`PRH’s position as the “number one” publisher in the United States, increasing its retail market
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`share to almostthree times that of its closest competitor.' Trial Tr. at 741:17-742:4 (Dohle).
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`In November 2021, the Antitrust Division of the United States Department of Justice
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`(“the government”) brought this action against PRH, S&S, and their parent companies (“the
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`defendants”), seeking to block the merger of PRH and S&S under Section 7 of the Clayton Act.
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`The government’s case sounds in “monopsony,” a market condition where a buyer with too
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`much market power can lowerprices or otherwise harm sellers. Essentially, the government
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`alleges that the merger will increase market concentration in the publishing industry, which will
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`allow publishing companies to pay certain authors less moneyforthe rights to publish their
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`books.
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`The case proceeded totrial on August 1, 2022. For twelve days, the Court heard
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`evidence and argument about how PRH’s acquisition of S&S would affect competition in the
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`“upstream” market for publishing rights. The Court heard testimony from authors, publishers,
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`In 2019, PRH had a percent share of the market for U.S. book sales and S&S had al percent share.
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`See ECF No, 177 (United States’ Sealed Corrected Proposed Findings of Fact and Conclusions of Law (“Govt.
`PFOF-PCOL”)) ¥ 13 (citing Defendants’ Exhibit No. DX”) 105 at 64); see also ECF No. 184 (government’s
`redacted post-trial brief). Thus, the combined entity would have a market share of approximately
`percent. The
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`merged company’s next closest competitor would >:iiii which had an percent share of
`the market for book sales in 2019. See Govt. PFOF-PCOL 4 13 (citingDX 105at 64).
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`literary agents, and industry executives, and admitted over 230 exhibits.” After a thorough
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`review of the record and careful consideration of the parties’ arguments, the Court concludes that
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`PRH’s acquisition of S&Sis likely to substantially lessen competition to acquire “the publishing
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`rights to anticipated top-selling books,” which comprise the relevant market in this case. The
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`Court therefore will enjoin the proposed merger of PRH and S&S.
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`I. BACKGROUND
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`A. The Industry
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`The book industry is dominated by five major publishing houses — PRH, HarperCollins
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`Publishers, S&S, Hachette Book Group, and Macmillan Publishing Group, LLC — which are
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`known as the “Big Five.” Together, the Big Five held nearly 60 percent of the market for the
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`sale of trade books in 2021 (i.e., books intended for general readership, as opposed to specialized
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`bookslike textbooks or manuals). See DX 382; PX 663 at 92.
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`The Court appreciated hearing the testimony of many dedicated professionals who work in the publishing
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`industry. The Court heard from authors Charles Duhigg, Stephen King, and Andrew Solomon. Publisher witnesses
`included: Jennifer Bergstrom, Senior Vice President and Publisher of the S&S imprint Gallery Books Group
`(“Gallery”); Sally Kim, Senior Vice President and Publisher of the PRH imprint G.P. Putnam’s Sons (“Putnam”);
`Liate Stehlik, President and Publisher of Morrow Group, HarperCollins Publishers; and Brian Tart, President and
`Publisher of the PRH imprint Viking Penguin (“Viking”). The following literary agents testified: Elyse Cheney,
`Christy Fletcher, Ayesha Pande, Gail Ross, Jennifer Rudolph Walsh (expert witness), and Andrew Wylie. The
`Court also heard from top industry executives, including Markus Dohle, CEO of PRH; Dennis Eulau, Executive
`Vice President and COO of S&S; John Glusman, Vice President and Editor in Chief of W.W. Norton & Company
`(“Norton”); Michael Jacobs, President and CEO of Abrams Books; Jonathan Karp, President and CEO of S&S;
`Madeline McIntosh, CEO of PRH in the U.S.; Brian Murray, CEO of Harper Collins Publishers; Michael Pietsch,
`CEO of Hachette Book Group; Don Weisberg, CEO of Macmillan Publishers; and Steven Zacharius, CEO of
`Kensington Books. The government’s economic expert was Dr. Nicholas Hill, and the defendants’ economic expert
`was Professor Edward Snyder. Finally, Adriana Porro,a statistician for U.S. Department ofJustice, Antitrust
`Division,also testified.
`The following witnesses testified by video: Christy Fletcher, John Glusman, Michael Jacobs, Andrew
`Solomon, Liate Stehlik, and Steven Zacharius. See Government’s Exhibit No. (“PX”) 2008 (Fletcher Dep.); Trial
`Tr. at 1740:16-17 (noting that video of Fletcher’s deposition was playedat trial); DX 422 (Glusman Dep.); DX 423
`(Glusmansealed); Trial Tr. at 1880:4 (noting that video of Glusman’s deposition was playedattrial); PX 2005
`(Jacobs Dep.); Trial Tr. at at 701:13—23 (noting that video of Jacobs’s deposition was playedattrial); PX 2004
`(Solomon Dep.); Trial Tr. at 689:7-8 (noting that video of Solomon’s deposition was played attrial). PX 2002
`(Stehlik Dep.) at 64-65; Trial Tr. at 628:23 (noting that video of Stehlik’s deposition was playedattrial); PX 2000
`(Zacharius Dep.); Trial Tr. at 385:11 (noting that video of Zacharius’s deposition was playedattrial),
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`The Big Five have achieved their market dominance in part by acquiring other publishers,
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`contributing to a trend toward consolidation in the industry. Bertelsmann entered the U.S.
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`publishing market by acquiring Bantam Books in 1977, which merged with Doubleday Dell in
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`1986 and with Random House in 1998. PRH itself was formed in 2013 when Random House
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`acquired Penguin Books. Since 2013, PRH has continued to acquire other publishers, including
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`Sasquatch Books, Rodale, Little Tiger, F&W Media, and Sourcebooks. Meanwhile, Hachette
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`has acquired several independent publishers in the last decade, such as Workman Publishing,
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`Worthy, Perseus, and Black Dog & Leventhal. See Trial Tr. at 102:13-103:4 (Pietsch), 204:3-
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`19 (Pietsch). In 2021, HarperCollins acquired Houghton Mifflin Harcourt, which previously was
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`one of the largest among the mid-size, independent publishers. See Trial Tr. at 1386:12-17
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`(Murray), 192:6—-193:15 (Pietsch). The remaining Big Five publisher, Macmillan, has pursued
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`organic growth. See Trial Tr. at 1079:23—1080:18 (Weisberg).
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`Some smaller publishers are well respected in the industry and compete against the Big
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`Five — in both the upstream market for acquiring books for publication and in the downstream
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`market for selling books to consumers. For instance, Scholastic is one of the largest children’s
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`book publishers and works with some of the same authors as the Big Five, see Trial Tr. at
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`118:20—22 (Pietsch), 545:10—547:2 (Karp); while Kensington, one of the largest remaining
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`independent publishers, is a prominent purveyor of romance novels. See PX 2000 (Zacharius) at
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`8; PX 2002 (Stehlik) at 64-65. In addition, Norton is a prestigious publishing house specializing
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`in narrative nonfiction and is favored by somebest-selling authors like Michael Lewis. See Trial
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`Tr. at 540:24-541:24 (Karp), 544:17—25 (Karp), 550:22—551:4 (Karp); DX 422 at 7. Other
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`players in the industry include well capitalized, mid-sized publishers like Amazon and Disney,
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`which each bring in over $100 million in annual revenues from publishing. See Trial Tr. at
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`737:22—738:11 (Dohle).
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`Each publishing company is organized as an umbrella organization that houses various
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`“imprints.” An imprint is a trade nameor brand namefor an editorial group. Imprints specialize
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`in publishing certain types of books and thus develop reputations for success in particular genres.
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`See PX 530 at 2. The editors within each imprint select and acquire manuscripts for publication;
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`and then collaborate with authors to develop andfinalize their books. See Trial Tr. at 97:1-6
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`(Pietsch), 1915:10-25 (Duhigg), 1919:8-1920:3 (Duhigg). PRH hasclose to 100 U.S.
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`publishing imprints within six publishing divisions. See Trial Tr. at 812:5—11 (Dohle); Govt.
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`Demo. | (PRH organizational chart). Its best-known imprints include Viking, Penguin Press,
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`Doubleday, Riverhead, Random House, and Putnam. S&S operates three publishing groups with
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`around 50 imprints, including Simon and Schuster, Atria Books, Scribner, and Gallery Books.
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`See PX 663 (materials for prospective S&S buyers) at 91, 101.
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`All publishers and editors are highly motivated to secure the rights to publish new books;
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`indeed, identifying and acquiring books that people wantto read is the essence of the business.
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`Yet only 35 out of 100 books turn a profit, and breakouttitles drive revenues — the top 4 percent
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`of profitable titles generate 60 percent of profitability. See PX 151 (presentation by PRH
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`executives on publishing industry) at 11; Trial Tr. at 747:16-18 (Dohle), 2289:2—10 (McIntosh)
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`(“Where the Crawdads Sing is a great current example. Fifty Shades of Grey, Gone Girl, Girl on
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`the Train... . [their] sales performance so outstrips our expectation, that they deliver most of the
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`profit to the company.”). Publishing has therefore been described by insiders as a “portfolio
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`business”: The business model is to acquire a large numberof high-quality books, knowing that
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`a substantial percentage ofthetitles will not be profitable. See Trial Tr. at 747:5—-9 (Dohle). As
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`PRH CEO MarkusDohleputit, publishers are “angel investors” that “invest every year in
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`thousands of ideas and dreams, and only a few makeit to the top.” Jd. at 747:5-9, The books
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`that do “makeit to the top” and sell well, especially over a numberof years, allow the companies
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`to take risks in acquiring new booksand enable publishers to manage the uncertainty inherent in
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`“betting” on new titles. See id. at 747:5—7 (Dohle); PX 151 at 11. Books that continuetosell
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`after the first year of publication comprise a publisher’s “backlist,” which can provide an
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`important source of stable revenue. Back lists allow publishers to play the “long game” because
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`some books take a while to becomeprofitable. See PX 2004 at 55. By contrast, the “front list,”
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`which consists of books not yet released or on the market for under a year, is risky and has
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`poorer margins, due to the expenses of marketing androll-out associated with the new titles. See
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`Trial Tr. at 118:15—119:11 (Pietsch).
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`B. Acquiring Books for Publication
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`Books begin, of course, with authors. Authors often spend years developing their ideas,
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`conducting research, and refining their manuscripts or proposals before submitting them for
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`publication. A project that is acquired maystill take months or years of work before it becomes
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`a completed bookthat is ready for distribution. See, e.g., id. at 1916:14-21 (Duhigg). To
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`support themselves, authors often rely on “advances” from their publishers. See id. at 1925:15—
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`22 (Duhigg), 1941:9-1943:] (Duhigg) (advance allowed him to take time off from his job to
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`write, support his newborn child, buy a house, and pay living expenses). An advance is an
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`upfront payment against the royalties that an author may earn in the future. The advanceis the
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`Royalties are payments madeto the author based on a book’s sales. See Trial Tr. at 106:20—-107:25
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`(Pietsch). For example, authors earn 7.5 percent of sales for paperback books. See id, at 255:24-256:20 (Pande),
`2011:9-10 (Kim). An advance is an upfront paymentof those anticipated royalties; the author is not required to pay
`back the advance even if the book’s actual royalties never exceed the amount of the advance. See id. at 106:20—
`107:25 (Pietsch). Advancesare paid in installments, typically in quarters. Generally, the first installment is paid
`upon the signing of the book contract; the second payment is made upon delivery and acceptance of the manuscript;
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`“single most important” term in a contract for publishing rights because in a “large number of
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`cases, it may be the only compensation that the author will receive for their work.” Jd. at
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`254:18-24 (Pande); see also PX 2002 (Stehlik) at 67. Indeed, most authors do not “earn out”
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`their advances, i.e., ultimately earn royalties that exceed the amount of their advances.
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`4 In
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`addition to the advance, authors care about working with editors who share their vision for the
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`book and who can help them to “bring the book into the world.” Trial Tr. at 97:2-6 (Pietsch);
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`see also id. at 1918:5-24 (Duhigg), 1943:13-17 (Duhigg) (editor is “the reason I’m there” at
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`PRH), 2055:10-2056:9 (Cheney), 2063:5—17 (Cheney).
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`Authors generally are represented by literary agents, who use their judgment and
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`experience to find the best home for publishing a book. They typically begin the process by
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`submitting the book (which might be a full or partial manuscript, or just a proposal) to multiple
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`imprints or editors on a preliminary basis, to gauge the levelof interest in the project. See id. at
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`246:11-22 (Pande), 2105:22— 25(Wylie); PX 151 at 5. Agents use their expertise to determine
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`which imprints and editors to target, based on factors such as the kinds of books the imprint
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`previously has published, how effectively they have published those kinds of books, and the
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`ability of the company to pay appropriate compensation. See Trial Tr. at 246:9-22 (Pande),
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`2117:8-2118:25 (Ross). Agents prioritize submitting manuscripts and proposals to Big Five
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`imprints becauseoftheir ability to pay; an agent might send out a second round of submissions
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`that includes more smaller publishers if interest among the Big Five is not strong. See id. at
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`246:17-22 (Pande), 248:15—249:10 (Pande). Given the size of PRH and S&S, and the number of
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`the third installment is paid upon publication; and the fourth payment is made twelve months later. See id. at 777:1—
`19 (Dohle), 1829:11~15 (Walsh), 255:1-25 (Pande). It can take three to four years for an entire advance to be paid
`to an author. See id. at 255:15—18 (Pande), 777:1-19 (Dohle).
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`See Trial Tr. at 108:2-12 (Pietsch) (“Roughly half the time. About half the books we [Hachette] publish
`earn out their advances.”), 254:20—24 (Pande) (20% of authors represented by Pande’s agency earned out advance),
`1239:25—1240:8 (Hill) (more than 85% ofauthor contracts for anticipated top-selling books never earn outtheir
`advance), 2101:3-5 (Wylie) (6% of books he represents earn out their advances),
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`imprints they represent, some agents “always” submit to multiple PRH imprints and to S&S. See
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`id, at 250:10—251:3 (Pande), 260:16—21 (Pande).
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`Agents try to maximize the advances paid to authors: They not only have a fiduciary
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`duty to achieve the best deal, see 7d. at 494:7-17 (Karp), 1748:21—23 (Walsh), but they also are
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`paid on commission(typically 15 percent of the advance), See id. at 245:18~25 (Pande); PX 151
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`at 5. Indeed, one prominent agent hasstated that it is his job to “get an advance that an author
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`doesn’t earn out,” Trial Tr. at 2100:5—25 (Wylie); while a publisher explained that “typically the
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`most important thing for an agent representing authors [is] to get the most amount of money up
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`front,” see PX 2002 (Stehlik) at 67.
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`Other common termsin a book contract include royalty rates, audio rights, and payment
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`structure (i.e., the number and timing of the installments in which an advanceis paid). See Trial
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`Tr. at 255:11-17 (Pande), 255:24—256:20 (Pande). Yet many of those other terms have become
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`standardized across the industry, making advance levels even more important. For instance, each
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`book formathas a standard royalty rate that is rarely altered. See id. at 106:20—107:13
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`(Pietsch).° Audio rights are now alwaysincluded in book contracts and may not be sold
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`separately. See id. at 257:14—258:6 (Pande), 622:17—25 (Karp); PX 328 (internal PRH email) at
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`1-2 (“Wehaveto get those [audio] rights.”). Finally, even though authors prefer to receive
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`“frontloaded” advances —- payments that are made sooner, and in fewer installments — the
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`industry norm has shifted in the opposite direction, from payouts in thirds to payouts in quarters.
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`See Trial Tr. at 254:25—255:3 (Pande), 256:22—25 (Pande), 1829:11—18 (Walsh); ae at 19—
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`20.
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`Generally, paperback booksreceive a 7.5-percent royalty rate; e-books and audio or digital downloads
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`receive 25 percent of net sales; and hardcover books get a 10-percent rate for the first 5,000 copies sold, 12.5 percent
`for copies 5,000 to 10,000, and 15 percent of sales exceeding 10,000 copies. See Trial Tr. at 255:24—256:20
`(Pande), 2011:4-15 (Kim).
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`The Court is unconvinced by the testimony of certain defense witnesses whostated that
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`advancelevels are not the most important factor in book acquisitions, and that the author’s “fit”
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`and comfort level with the editor are more significant. See Trial Tr. at 1756:2—1757:8 (Walsh),
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`1836:5—1837:2 (Walsh), 1935:14—-20 (Duhigg), 2055:5—2056:9 (Cheney), 2063:4—17 (Cheney).
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`While that may be true in a small numberof cases, books generally are sold to the highest bidder.
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`See id, at 2395:2-10 (McIntosh) (underbidder winning an auctionis “rare’”), 2090:20—23 (Wylie)
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`(“[W]e are picking one that we feel presents the strongest combination of financial terms plus
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`editorial engagement and context for the author.”), 2106:1—7 (Wylie) (sold books to the highest
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`bidder about 93% of the time). While the choice of an editor is undoubtedly significant, the
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`agent typically has submitted the bookonly to a pre-screenedlist of suitable editors and thus may
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`choosethe highest bid from among those editors. See id. at 246:1—22 (Pande). The
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`overwhelming weight of the evidence supports the conclusion that advance levels are the
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`primary focus of book acquisitions.
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`Most booksare sold in exclusive negotiations between the agent and a single editor or
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`imprint.° Such negotiations come about because(1) a publisher has an “option” from a prior
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`contract with the author, which allows the publisher to take thefirst look at the author’s next
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`project and submit an exclusive bid within a limited period; (2) a publisher is willing to pay a
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`premium to “preempt” the book from being offered to others; (3) an agent approachesa single
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`editor that is a particularly goodfit for a book and enters negotiations with that editor and their
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`imprint; or (4) only one imprint is interested after the agent has completed a round of
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`Morethan half of books are sold through negotiations. See Trial Tr. at 1608:20—1609:1 (Hill) (explaining
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`that 60% of books with advances over $250,000 involve negotiations, with the remaining 40% being auctions); see
`also id, at 478:15~-479:1 (Karp) (explaining that less than half of acquisitions are auctions because S&S has “so
`many repeat authors), 771:11—14 (Dohle) (auctions are “small sliver of the overall deals we do, especially the
`expensive deals we do”), 1963:20—1964:18 (Kim)(explaining that Putnam imprint buys 80% of books through one-
`on-one negotiations and attributing the higher percentageto its numberof “franchise” authors).
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`submissions. See id. at 475:13-476:10 (Karp), 954:18-955:7 (Tart). Alternatively, an agent
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`might decideto utilize an auction format, which requires imprints to bid against each other to
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`acquire the book. Auctions may be organized in (1) a “round robin” format, where the agent
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`accepts competing bids in several “rounds,” eliminates the lowest bidders before proceeding to
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`the next round, and continues until only one bidder remains; (2) a “best bids” format, whereall
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`bidders submit their highest bid in a single round; or (3) a hybrid format, such as “better best,”
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`where the bidding starts as a “round robin” and then shifts to a final round of “best bids.” See id.
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`at 111:8-113:4 (Pietsch), 2049:1-19 (Cheney), 2116:10-—2117:9 (Ross).
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`A publisher that hopes to acquire a desirable book must offer a competitive advance to be
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`in the running. Editors and publishers determine how muchtheir imprint is willing to pay for a
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`given book. See id. at 97:16 (Pietsch). To make that determination, they estimate the
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`profitability of the book by generating a profit and loss statement (“P&L”). Such a statement
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`suggests an appropriate advance after considering (1) the anticipated sales of the book andits
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`expected list price (in various formats); and (2) predicted production and marketing costs. See
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`DX 414 (P&L Sheet); Trial Tr. at 915:5-918:21 (Tart). The most important input in a P&L —
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`and the driving force behind the advance offered — is the publisher’s estimate of book sales.
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`See Trial Tr. at 917:13-16 (Tart) (“the higher .
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`.
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`. sales equate to a higher advance in the P&L”),
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`110:19-111:1 (Pietsch) (relationship between the level of advance and projected sales is
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`“extremely close”). The sales prediction is based on the demand for comparabletitles (referred
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`to as “comptitles” or “comps”), which have similar characteristics to the proposed bookin terms
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`of subject matter, literary merit, or author background. Publishers also often confer with their
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`sales, publicity, and marketing teams about expected demand for a book. See id. at 842:15—
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`843:10 (Dohle), 914:11-18 (Tart), 1036:13-16 (Tart). But publishers do not rely only on the
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`P&L to determine an appropriate advance. They also considerfactors like the editor’s
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`enthusiasm, their relationship with the author, whether the book might win an award, and
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`whether the bookis in a growing category ——- if they really want a book, they will “stretch”
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`beyond what a P&L suggests would be profitable. Jd. at 969:4—970:14 (Tart), 967:3—10 (Tart).
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`Publishers’ sales estimates, broadly speaking, are reasonably reliable. Ultimately, there
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`is a correlation between high advances and high book sales. Books that sell well tend to have
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`garnered high advances, and booksthat receive high advances tend to sell well. See id. at 749:4—
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`22 (Dohle); PX 151 at 11.
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`C. The Competition for Books
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`Regardless of the method used to acquire a book’s publishing rights, the amountthatis
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`paid is inexorably determined by competition. In an auction, a skillful agent can capitalize on
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`enthusiasm for a book and play bidders off against one another, knowing that a publisher will
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`“bid what .. . [it] need[s] to buy that book” because “it [only] takes one passionate editor at
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`another imprint to win that book away.” Trial Tr. at 1965:21—25 (Kim). Although the perceived
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`value of a bookis subjective and may vary amongeditors, there is often a consensus among
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`industry players about which bookswill be successful. See id. at 2108:14—24 (Wylie) (“I think
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`there are recognizable qualities in — in books that people who have been in the business for a
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`long time would easily recognize.”), 310:12—24 (Pande) (agent explaining that she treats an
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`anticipated strong seller differently, such as by “sending it out as widely as I possibly can”).
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`It is not uncommonfor editors and publishers to experience a “kind of auction fever,” in
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`which they change their sales expectations for a book and increase what they are willing to pay
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`for it during a competitive round-robin auction.
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`/d. at 180:20—181:11 (Pietsch). “[T]he interest
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`of other parties validates [a publisher’s] own sense of what a book is worth.” /d. The record
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`1]
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`Case 1:21-cv-02886-FYP Document 196 Filed 11/15/22 Page 12 of 80
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`contains numerous examples of books that sold for unexpectedly high advances and achieved
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`other favorable terms for their authors dueto the bidding frenzy incited by competitive auctions.
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`For instance, in a hybrid auction of rounds followed by best bids,Sa
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`Peeinitially received bids of between $150,000 and $400,000 from four publishers.
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`See PX 944-B (Porro bidding summary); Trial Tr. at 923:16—930:18 (Tart) (discussing book’s
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`acquisition); PX 320 (emails). After six rounds of bidding, PRH’s Viking imprint more than
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`doubledits initial bid and won the book for $775,000 “overstiff competition.” PX 39 (email
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`from Tart); see also PX 944-B (Porro bidding summary); Trial Tr. at 923:16—930:18 (Tart). At
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`the best-bids stage, Viking decided to “stretch”from its initial bid clearance of $700,000 because
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`“there just is literally no telling what the opponents hold in their hands.” PX 326 at 1 (emails
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`between Tart and Viking editor Wendy Wolf). Another exampleisPo
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`f which also benefitted from a rounds auction. See PX 948-B (Porro bidding
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`summary). In the first round, there were three bids, ranging from $200,000 to $300,000. See id.
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`Yet after five rounds, || received $535,000 plus a $100,000 bonus. See id.; Trial Tr. at
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`433:24-435:17 (Karp) (discussing bidding process); PX 632 (emails discussing auction). The
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`record contains at least 11 other examples that illustrate the sharp increase in prices engendered
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`by competitive auctions, with advances increasingat least $100,000 by the end ofthe auction.’
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`See PX 937-B (one-round and best-bid auction with beginning high bid of $375,000 and winning bid of
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`$550,000); PX 938-B (four-round and best-bid auction with beginning high bid of $250,000 and winning bid of
`$750,000); PX 716 (addressing auction summarized in PX 938-B); Trial Tr. at 435:21-437:19 (Karp) (same); PX
`939-B (seven-round auction with beginning high bid of $300,000 and winning bid of $1.5 million); PX 940-B (five-
`round and best-bid auction with beginning high bid of $400,000 and winning bid of $1.1 million for two books); PX
`941-B (eight-round auction with beginning high bid of $550,000 and winning bid of $825,000); PX 947-B (two-
`round and opportunity-to-improve auction with beginning high bid of $500,000 and winning bid of $600,000 and
`bonuses for two books); PX 950-B (three-round and best-bid auction with a chance to improve, with beginning high
`bid of $250,000 and winning bid of $700,000); PX 951-B (best-bid and opportunity-to-improve auction with initial
`preempt offer of $750,000 and winning bid of $1.1 million); PX 954-B (three-round and best-bid auction with
`beginning high bid of $750,000 and winning bid of $1.05 million); PX 955-B (one-round auction with opportunity
`to improve, with beginning high bid of $800,000 and winning bid of $1.5 million); PX 729 (bookinitially received
`$750,000 preemptive offer from S&S, went to auction, and then S&S made an offer 10% higherthan final auction
`bid, for offer of $1.1 million); Trial Tr, at 445:5-448:11 (Karp) (addressing book in PX 729).
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`Competition is also a key factor in one-on-one negotiations, where publishers must offer
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`high advances because they knowthat the agent always has the option of breaking off
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`negotiations and selling the book on the market. See Trial Tr. at 955:11—20 (Tart) (explaining
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`that in one-on-one negotiations “you know there’s competition out there”), 1847:1-6
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`(Bergstorm) (“I assume I am negotiating exclusively, but I always have my competition in my
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`rearview mirror. But it’s one on one. And sometimes we don’t cometo terms, and sometimes
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`they will go to someoneelse.”), 1966:17—24 (Sim) (“[E]venif it’s a one-on-one negotiation .. .
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`we’re constantly aware that there’s competition ... .”), 114:21-115:6 (Pietsch). Some
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`publishers consider individual negotiations to be the most challenging way to acquire a book,
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`because “you are basically bidding against the author’s expectations and the agent’s
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`expectations,” and there are “no other market inputs [but] you know there’s competition out
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`there.” Jd. at 955:11—20 (Tart). In such situations, agents have bargaining leverage because the
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`threat of taking the book to other publishers always lurks in the background. This is particularly
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`true where a publisher is attempting to preempt the auction process. See, e.g., id. at 115:21—
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`116:5 (Pietsch) (“When we’re calculating a preempt, we wantto bring an advance that we
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`believe the agent will consider a good advance; that they will think, yes, there’s a chance that if I
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`take this to auction, I might not get this muchorthis is the range that it might end up at. And so
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`wetry to offer a high advance that we think will be compelling to — to the agent... .”); 303:13-
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`15 (Pande) (“So preemptive offers tend to be quite high because it has to incentivize us to be
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`willing to take the book off the table and not offer it in a competitive situation.”). As agent Gail
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`bidding or not, they’re always there.” Jd. at 2127:11-13.
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`Rossstated: “[I]n this business, there’s always the other competitor. Whether.. . they’re
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`Case 1:21-cv-02886-FYP Document 196 Filed 11/15/22 Page 14 of 80
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`Agents often submit a book to more than one imprint within a publishing company, see
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`id. at 250:10-—251:3 (Pande), and publishers sometimes allow their imprints to bid against one
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`another in auctions. For example, PRH allows competitive bidding betweenits divisions, so
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`long as there also is an external bidder; but for imprints within the same division, PRH requires
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`the division to submit a “house bid.” See id. at 769:2—20 (Dohle), 935:20-—-936:1 (Tart), 943 :3—
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`24 (Tart); PX 332 (email from PRH staff to agent explaining imprint bidding rules). A house bid
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`is a single bid made on behalf of more than one imprint from a particular publisher; the house bid
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`allows the agent to choose which imprint to work with, and each imprint might also submit a
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`“pitch,”ie., a letter or memodescribing its editorial and other services. See PX 2002 (Stehlik) at
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`75-76. Hachette also allows its imprints to bid against one anotherif there is an external bidder,
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`see Trial Tr. at 239:11—23 (Pietsch), and Macmillan appears to allow some imprint competition,
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`compare PX 938-B (showing separate bids from two Macmillan imprints), with PX 941-B
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`(showing house bid from Macmillan imprints), and PX 954-B (showing one bid from Macmillan
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`imprints). S&S and HarperCollins, however, do not allow competitive bidding among their own
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`imprints but instead require their imprints to submit house bids. See Trial Tr. at 463:11—13
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`(Karp), 600:8-10 (Karp), 2119:11-—24 (Ross); PX 2002 (Stehlik) at 75-76. Allowing sibling
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`imprints to compete against each other increases the publisher’s chances of winninga title; gives
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`the editors from each imprint the freedom to pursue their desired projects, and allows authors
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`more choice in finding the most “comfortable home”and best editorial match for their books.
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`Trial Tr. at 839:11—840:4