This post is for those publishing professionals who think that if they can just get the DOJ to understand the argument that publishing is special, the lawsuit against the agency publishers will magically vanish.
These people have probably not taken a look at the history of price-fixing. Every industry that has been socked with a price-fixing complaint has argued that it is special, and if only the court understood how special it was, the court would agree that it should have the capacity to fix prices. Every industry. I don’t know why every industry feels it has to make this argument, but they all lose—every single time.
This blog post is a “greatest hits†of antitrust—throwing together a smattering of cases in which industries have argued that they should be exempt from antitrust law, that the Court simply doesn’t understand the industry, and that if only it did, they would prevail!
I start by going back to 1897—an early case, since the Sherman Act was passed in 1890. In United States v. Trans-Missouri Freight Association, 166 U.S. 290 (1897). There, the defendants claimed that railroads were not covered by antitrust law. Railroads, they argued, were a special snowflake: “Among these differences are the public character of railroad business, and, as a result, the peculiar power of control and regulation possessed by the state over railroad companies.†Id. at 320.
The Court disagreed: “Trading, manufacturing, and railroad corporations are all engaged in the transaction of business with regard to articles of trade and commerce, each in its special sphere—either in manufacturing or trading in commodities or in their transportation by rail.†Id. at 322. It concluded:
All combinations which are in restraint of trade or commerce are prohibited, whether in the form of trusts or in any other form whatever.
We think, after a careful examination, that the statute covers, and was intended to cover, common carriers by railroad.
Id. at 326-27.
In United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), the defendants—like the agency publishers at issue here—thought that they were facing what they called “ruinous competitionâ€â€”competition so fierce that it (they claimed) could destroy the industry. For that reason, they believed that their price-fixing scheme should be allowed.
Here’s what the Court thought of that:
Congress has not left with us the determination of whether or not particular price-fixing schemes are wise or unwise, healthy or destructive. It has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies. It has no more allowed genuine or fancied competitive abuses as a legal justification for such schemes than it has the good intentions of the members of the combination. If such a shift is to be made, it must be done by the Congress.
Id. at 321-22.
In Associated Press v. United States, 326 U.S. 1, 6 (1945), one of many cases that hashed out the role of the AP in our society, the Supreme Court dealt with the “Special Snowflake†exemption: “[W]e are not unmindful of the argument that newspaper publishers charged with combining cooperatively to violate the Sherman Act are entitled to have a different and more favorable kind of trial procedure than all other persons covered by the Act.â€
The Court’s response?
“Equal—not unequal—justice under law is the goal of our society. Our legal system has not established different measures of proof for the trial of cases in which equally intelligent and responsible defendants are charged with violating the same statutes. Member publishers of AP are engaged in business for profit exactly as are other business men who sell food, steel, aluminum, or anything else people need or want…. All are alike covered by the Sherman Act.â€
Id. at 6-7.
In Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), the Virginia State Bar (not a governmental body, incidentally) had published a minimum fee schedule for its lawyers. The Goldfarbs, unhappy about the cost of legal representation, sued. The State Bar argued that legal professionals were special snowflakes—specifically, that “competition is inconsistent with the practice of a profession because enhancing profit is not the goal of professional activities; the goal is to provide services necessary to the community.†Id. at 786.
The Supreme Court said in response: “The nature of an occupation, standing alone, does not provide sanctuary from the Sherman Act.†Id.
In National Society of Professional Engineers v. United States, 435 U.S. 679 (1978), the ethics board of the NSPE banned competitive bidding practices. They, like other industries before them, advanced the Special Snowflake defense:
[T]he Society averred that the standard set out in the Code of Ethics was reasonable because competition among professional engineers was contrary to the public interest. It was averred that it would be cheaper and easier for an engineer “to design and specify inefficient and unnecessarily expensive structures and methods of construction.” Accordingly, competitive pressure to offer engineering services at the lowest possible price would adversely affect the quality of engineering. Moreover, the practice of awarding engineering contracts to the lowest bidder, regardless of quality, would be dangerous to the public health, safety, and welfare.
Id. at 684-85.
Once again, the Supreme Court didn’t buy it:
It may be, as petitioner argues, that competition tends to force prices down, and that an inexpensive item may be inferior to one that is more costly. There is some risk, therefore, that competition will cause some suppliers to market a defective product.… These are not reasons that satisfy the Rule; nor are such individual decisions subject to antitrust attack.
Id. at 693-94.
In Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332 (1982), the people fixing prices were, this time, doctors. There, the doctors argued that they were, well, doctors. Doctors, they said, are special. They are professionals. And they have to deal with insurance companies, which are evil. The Court disagreed: “We are equally unpersuaded by the argument that we should not apply the per se rule in this case because the judiciary has little antitrust experience in the health care industry.†Id. at 349.
This is a short history of section one of the Sherman Act. Lawyers and doctors—professionals who have special relationships with their clients—get no exemptions. Civil engineers claimed that if they didn’t get to prop up their fees, bridges would collapse; the Court gave that argument short shrift. Oil companies whined about ruinous competition; the Court’s response was that if the oil company was unable to compete, it should be ruined.
Stop thinking about this emotionally. Stop thinking of this as your livelihood. Ask yourself honestly: Do you think that courts will say that book publishing is more important than the building of safe bridges? Do you really think that courts will find it so much more important that they will grant book publishers a judicial exemption in the face of more than a hundred years denying them?
No. No, you don’t.
There are only two legitimate defenses to a claim of price-fixing:
- We did not fix prices.
- It was a legitimate joint venture.
“We are a special snowflake†is not on the list.
I should add that when I say “every time” above, you can always find places where the courts, arguably, blink from such a rule. I believe that in modern times, most people believe that those blinks add up to the legitimate-joint-venture exception.
Some people might disagree with that interpretation, but I know few who would who are actually familiar with the modern practice of antitrust.
Great post! I actually looked at you About Me to see if you were involved in law. 🙂
My “About Me” is fairly vague. At some point, I might rewrite it to claim a little bit more expertise, but I’m leaving it vague for now.
Yeah, you would think that when the press (those folks with their very own amendment to the Constitution and it’s the first one) didn’t get the special snowflake treatment, others would give up. But everybody believes in their own brand of “special snowflakeness”. Mostly, they are just flaky.
Thanks for the post. I guess those who don’t learn their history are literally doomed to repeat it.
Thanks for explaining this in a way that we non-lawyers can understand the court’s decision. It’s much clearer to me now why the DOJ ruled as it did.
Darlene,
Technically, we don’t have a court ruling yet. The DOJ is the plaintiff in this case, not the court. They’re acting essentially as prosecutors seeking to enforce the law, not judges seeking to rule on it. So technically, we don’t know what the court will say.
But given the settled state of the law, I don’t have much doubt about what will happen.
When I think of the phrase “antitrust exemption,” what springs immediately to mind is baseball.
Is there some way I’m not seeing in which the suits that have been brought against major league baseball on antitrust grounds are inherently different from the cases you’re citing here?
Mind you, with respect to publishing I think you’re entirely correct. I’m just curious now about the baseball case. Is the court truly being inconsistent when it comes to America’s Pastime?
This is excellent; thank you! I lay things out for students wanting grade exceptions much the same way. I think a lot of things in life are better understood when you realize there is no special snowflake exemption.
Hi Courtney:
Thanks for setting all this out. Brilliant as always.
I only hope that the lawyers for these companies who are fighting this have got their special snowflake retainers. Given what you’ve posted about the damages that could be assessed against them if they lose, those companies could be out of business (well, except for Apple who have $40 billion in the bank of course).
What would happen to the settling parties if the court, for some inexplicable reason, finds that the settlement is not acceptable for some bizarre public policy reason and they can’t come to another one? I get that the law requires it, but I just do not understand why anyone (except possibly Apple whose contracts would be broken as a result of the settlement) can have any real influence on whether or not it’s accepted by the Court – this settlement is a business decision on the part of savvy businesses and it could have been made for any number of reasons (they don’t want to waste their money on legal fees, they don’t want bad publicity -can you imagine what’s going to come out at trial given what the pleadings say)), agency isn’t really working for them anyway, they believe that they might lose etc. or any or all of the above). If the others want to fight on, more power to them (and more billings for their lawyers 🙂 ).
I understand that for all intents and purposes the “agency” model is dead if the settling parties bail, but I’m trying to understand, from a theoretical perspective, why any comments from third parties should have any effect on the settlement.
Hope you’re having fun at RWA.
@Lynnd: Any settlement regarding antitrust is open to public comment because the settlement has to be in the best interests of the public. So the government has to accept public comment on this (and any number of things).
D’oh! I did know the difference, but appreciate your clarification. This is what I get for writing on the fly.
I was familiar with the AP case from college Law of Mass Communications class, and based on that and the previous cases you cited I’d agree with your assessment. I wouldn’t bet against the DOJ on this one.
@Jane: Hi Jane: Thanks, I understood that the public comments process is part of the proceeding because of public interest from your excellent posts on the intricacies of this case.
I understand why such comments would be necessary in many cases. I guess that I’m just wondering how persuasive you think such comments are in a case like this where there are very valid reasons why some of the parties might want to settle. If those third party comments manage to sway a judge into rejecting the settlement, what happens to the parties who wanted to settle if they then can’t reach another settlement agreement (I know that would probably be unlikely, but it is theoretically possible) and damages are subsequently assessed against them (would the settling parties damages be any less because they tried to settle and couldn’t through no fault of their own)?
@Lynnd and @jane:
It’s only true that there must be an opportunity for public comment in antitrust cases where the government is a party to the suit. That’s because hypothetically the worry is that the government might allow settlements that would have broader business side-effects. Settlements between businesses typically only involve those businesses. With the government, there may be additional public policy concerns.
@Jason Black: Jason, the antitrust exemption for baseball is statutory–that is, it’s written into the law by Congress. It’s not a creation of the courts.
There are a handful of statutory antitrust exemptions. Some of the sports leagues, the medical match for residency, and labor unions are the ones that most immediately come to mind.
So the Court isn’t being inconsistent–it’s Congress that is.
That’s why the Court’s response to “I am a special snowflake” is always the same thing: “It’s not our job to judge the specialness of your snowflake. If your snowflake is really special, go ask Congress for an exemption. But Congress wrote this statute to apply to everyone except the ones that it exempts, so we’re going to keep applying it as written until they tell us differently.”
Oh, wait. I’m wrong. This is what I get for talking about things before looking them up. I just got off a plane so naturally I immediately responded. (Which I try not do 90% of the time, and this is precisely why.)
Yeah. Baseball. Let’s just say that the court has never considered expanding it to things that are outside the field of sport, and IIRC Congress narrowed some aspects of it.
It’s not a statutory exemption. It’s just the obligatory exception that proves the rule. It exists so someone can mention it in law school and the professor can give that person the evil eye and say, “Don’t try that at home, kiddies.”
Actually, baseball has an antitrust exemption because the Court ruled that it was a special snowflake – that it wasn’t interstate commerce. “The business is the giving of exhibition games, which are purely state matters,” Oliver Wendell Holmes wrote for the unanimous court in Federal Baseball Club v. National League. The Court has upheld baseball’s antitrust exemption two subsequent times (Toolson v. New York Yankees and Flood v. Kuhn) but has refused to extend it to any other sport. The NFL in particular has lost antitrust cases several times (Radovich v. National Football League, LAMCC v. National Football League).
So baseball, but not sports in general, really is a special snowflake.
The problem is that the DOJ lawsuit is not about price fixing; it is about conspiring to price fix. The DOJ says that the price fixing is OK as long as two or more publishers don’t agree in advance to price fix on the same day at the same time. Do not forget that Random House is not part of the antitrust suit even though it is “price fixing.” Constantly lost in the arguments in support of the DOJ settlement is that the settling defendants can return to price fixing after a couple of years with the DOJ’s approval. The suit is about conspiracy not about price fixing.
Thank you for writing this Courtney. You made me laugh and think, which is pretty impressive for first thing in the morning.
I am now going to use “special snowflake” as many times as possible today. Love it!
There are some very smart people in Romancelandia, and I am proud to be part of the community.
@Rich Adin: Rich, at least in connection with this post, you’re making a distinction without a difference.
When I say someone is “charged with price-fixing,” that’s legal shorthand for “charged with entering into a contract, combination, or conspiracy to fix prices in violation of Section 1 of the Sherman Act.” This is sometimes also called horizontal price-fixing, because it involves agreements among competitors.
It is not shorthand for what I think you are talking about–which is a manufacturer setting a retail price with the sellers of the product. That’s been called vertical price-fixing, or resale price maintenance.
If you go through and read the cases above, it’s clear that they’re all talking about horizontal price-fixing–that is, there’s some kind of conspiracy.