Legal analysis of the Amazon/Macmillan brouhaha

Editor’s Note: this is reprinted, with permission, from Scriviner’s Error blog of C. E. Petit. As a lawyer I’ll just say that I agree with this conclusions. Numbers in brackets refer to footnotes at the end of the article. PB

Depending on how one counts, this is either the second or third major AmazonFail arising from egotistical — and ultimately stupid and self-defeating — mass delistings of material by Amazon. A pox on all their houses; although Amazon bears the most blame for this, Macmillan is hardly blame-free.

Let’s get the Macmillan problem out of the way first, because understanding it sheds an awful lot of light on other issues. Andrew Wheeler offers a useful introduction that, unfortunately, doesn’t go far enough in assigning responsibility. First, one should note that Macmillan is willfully and misleadingly mislabeling its “new model”; leaving aside that it isn’t at all new, it is not an agency model. It is, instead, a fewer-layers version of the present book retailing model, which is not a sales model: Instead, the “new” model is a single-layer consignment instead of a multilayer consignment. This does have some significant legal implications, particularly for taxation purposes and timing of payments… but, as important as those are, they are ultimately less important than the industry’s refusal to accept that the Copyright Act of 1976 and the Bankruptcy Code of 1978 operating together fundamentally changed the legal nature of the author-publisher relationship.

Under the older law (the 1909 Copyright Act and 1898 Bankruptcy Act, respectively), an author-publisher arrangement was inherently a sale: Publication required ownership — even if fleeting — of the entire copyright. This language continues to pervade author-publisher agreements and arrangements, even though the fundamental change from unitary copyright to separable subrights should have resulted in a fundamental rethinking of contracts, economics, and virtually everything else. Combined with the formalized pro-creditor and pro-secured-interest provisions in the Bankruptcy Code, one would expect things to look rather differently, at least by now, thirty-two years after the enabling legal landscape changed irrevocably. Instead, Macmillan’s position depends fundamentally on assuming full ownership and control of not just the rights actually transferred in publishing agreements with the authors, but of a full, unrestricted ownership interest in Macmillan’s packaging of the author’s intellectual property for market. Crucially, Macmillan could not maintain this position without having oligopoly power to exert — and we’ll be returning to that shortly.

Nonetheless, most of the blame here goes to Amazon. [1] It’s actually fallout from a bad Supreme Court decision from a couple of years ago regarding ladies’ leather accessories. (Sadly, this is about the closest we’re going to get to “leather” in this whole discussion.) In Leegin, [2] the Supreme Court overturned a 95-year-old decision holding that resale price maintenance agreements represent a per se antitrust violation, holding instead that they must be judged under the antitrust “rule of reason” doctrine. In practical terms, that means that a plaintiff complaining that a resale price maintenance agreement violates antitrust law can win if, and only if, the plaintiff hires outrageously expensive lawyers, and has a smoking gun, while the defendant hires a bottom-of-the-class graduate of a bottom-of-the-heap law school who never took antitrust law and has never handled an antitrust matter before. [3] It doesn’t matter for antitrust purposes that Leegin directly concerned only agreements to maintain a minimum price; antitrust law may be a tangled brier patch indeed, but the restriction is on agreements concerning any fashion of price restrictions.

I suppose that’s all suitably theoretical and eye-glazing. Just what does it have to do with the Google Book Search settlement? In the simplest possible terms — so that even the legal staff and management at Amazon can understand — it demonstrates the direct antitrust-violating consequences of precisely the same arrangement as the settlement establishes for orphan works and other unclaimed works. Prettying that arrangement up with an illusory trusteeship concerns only the cosmetics and exact mechanism; it does not change the substance. This particular incident (that will, no doubt, be cleared up in a week or less, even if it takes longer than that for a public announcement) demonstrates that oligopoly power over distribution harms consumer choice. That is all that is necessary to state an antitrust claim, Leegin notwithstanding.

Too, this dispute also makes all too clear the oligopoly problem with putting the publisher class and the author class sharing from the same pot of rights. Bluntly, under the 1976 Copyright Act, there is no real question that the publishers’ rights are subordinate to those of the authors (excepting, of course, works made for hire… in which the patron/publisher is wrongly defined as the author). If Amazon’s and Macmillan’s missteps since Friday result in Judge Chin seeing that even more clearly, and therefore severing the two improperly joined lawsuits and torpedoing the GBS settlement as failing under Rule 23, then perhaps some overriding good can come of this fiasco. Even if all he does is reject the purported dispute resolution mechanism — a mechanism that fails under the Federal Arbitration Act, but that’s another story entirely — that will at least slow things down enough for some wiser heads to speak up.

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[1]. I suppose Amazon’s legal staff might argue that it’s a power relationship with management that’s the real problem… but that violates the old rule “do not ascribe to malice that which can be explained by ignorance or stupidity.” Jason Stackhouse would probably be the smartest guy on Amazon’s legal staff.

ANDY BELLEFLEUR: It’s interestin’, because … um … this’s the only videotape we found in Maudette’s apartment.
JASON STACKHOUSE: Well, I guess that means somebody took ’em all, right? Somebody didn’t want you to see them?
ANDY: Or somebody only wanted us to find this one? Because it supposedly clears him of a crime that maybe he came back later to commit?
JASON (at first nods — then laughs softly): Aw … come on, Andy. I’m not that smart!

True Blood 1.02 (“First Taste”) I hold Amazon’s in-house legal staff in lower than minimal high professional regard; I’ve had too many dealings with them. And remember, y’all, if you decide this is defamatory, I can defend with the contents of those past dealings… and that might prove far, far more damaging.

[2]. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), overruling Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

[3]. I do need to dispose of one comparison that some others are making. This may bear some superficial resemblance to disputes between cable companies and content providers, but one must recall that those are regulated monopolies… and there’s nothing “regulated” about publishing whatsoever. Further, the regulation extends to actual pricing terms to customers.