November/December 2022 ▪ Volume 26 ▪ Issue 10
LAWYER
LONG STORY CUT road map for future DOJ and Federal Trade
Commission attempts to challenge transactions
SHORT: COURT BLOCKS based on potential harm to workers. To that
MERGER REDUCING end, the DOJ touted the decision as “reaffirm-
[ing] that the antitrust laws protect competition
FROM FIVE TO FOUR
The M&A
for the acquisition of goods and services from
THE NUMBER OF workers.”3
COMPETITORS FOR THE Highlights from the Opinion
PURCHASE OF BOOK
In an 80-page opinion, Judge Florence Y.
PUBLISHING RIGHTS Pan found that the proposed merger of Penguin
By Bernard (Barry) A. Nigro Jr., Random House (“PRH”) and Simon & Schuster
Nathaniel L. Asker and Renee E. Turner (“S&S”) “violates Section 7 of the Clayton Act
Barry Nigro is a partner in the Washington,
because it is likely to substantially lessen com-
D.C. and New York offices of Fried, Frank, petition in the market for the publishing rights
Harris, Shriver & Jacobson LLP. Nathaniel to anticipated top-selling books.”4 This deci-
Asker is a partner, and Renee Turner is an sion follows nearly two years after the signing
associate, in Fried Frank’s New York office.
of the transaction in November 2020.
Special thanks to Madison Chajson for her
valuable assistance in the research and draft-
In challenging the deal, the DOJ argued that
ing of this article. Contact:
or the proposed consolidation of two of the “Big
or Five” book publishers in the U.S. would lessen
.
A recent decision enjoining the proposed IN THIS ISSUE:
merger of Penguin Random House and Simon
Long Story Cut Short: Court Blocks
& Schuster, two of the largest book publishers Merger Reducing from Five to Four
in the U.S., marks a significant victory for the the Number of Competitors for the
Purchase of Book Publishing Rights 1
Antitrust Division of the Department of Justice,
New FTC Section 5 Policy Statement
following three recent court losses in its efforts Targeting Unfair Methods of
to block the mergers of UnitedHealth/Change Competition Related to Mergers and
Conduct Signals Significant Policy
Healthcare,1 U.S. Sugar/Imperial Sugar, and Change 4
Booz Allen/EverWatch. In remarks by Assis- Delaware Court of Chancery Finds
tant Attorney General Jonathan Kanter follow- Personal Jurisdiction Over LLC
“Acting Manager” in Post-Closing
ing those losses, he emphasized that the DOJ is Investor Action Challenging Merger
“committed to bringing difficult cases” and With SPAC 8
declared that “[i]mprovements to antitrust Introducing Rep & Warranty Insurance
to Section 363 Sales 9
enforcement will not happen if the Antitrust
Corporate Governance Feature:
Division is unwilling to challenge aggressively Preparing for the 2023 Proxy Season
anticompetitive conduct and unlawful market in the Era of Universal Proxy 14
consolidation.”2 This case, which the DOJ chal- A New Age of Competition Law:
Thoughts on Merger Filing and
lenged on the basis that the transaction would Review 17
create undue buyer or “monopsony” power From the Editor 22
(i.e., lower compensation for authors of antici-
pated top-selling books), will likely serve as a
42826281
, November/December 2022 | Volume 26 | Issue 10 The M&A Lawyer
competition for the purchase of rights to “anticipated publisher submits a bid of $250,000 or more for a book,
top-selling books” and lower the advances paid to those that publisher has determined that the book is likely to
authors. After a 13-day trial, the court agreed with the be a top seller and knows that the competitors for the
DOJ, finding that the elimination of head-to-head com- book are likely to be limited to the Big Five.”9 The
petition between PRH and S&S and the ability of the court also relied heavily on the findings of the DOJ’s
merged firm potentially to coordinate with the remain- expert economist, as well as evidence showing that the
ing competitors would likely lead publishers to pay elimination of direct, head-to-head competition be-
authors of anticipated top-selling books lower tween the merging parties is likely to harm authors,
advances.5 noting numerous examples where the firms were the
two highest, or the only two, bidders in auctions for
The court explained that “competition between PRH
and S&S benefits authors by increasing advances paid anticipated top-selling books.10
for their books” and stated that “industry participants
In addition, the court found that the transaction was
predict that the loss of that competition would be harm-
likely to result in harm through “coordinated effects,”
ful to authors.”6 In an overall market in which five
which occur when competitors align their behavior in
competitors accounted for only 60% of the sales of
concentrated markets. 11 The court referenced the
“trade books” published for general readership, the
Second Circuit decision in United States v. Apple, Inc.,
DOJ alleged harm in a narrow submarket—anticipated
in which six book publishers, including Penguin Books
top-selling books—where market concentration is
(before its acquisition of Random House) and S&S,
much higher. The court found this narrower market to
be supported by the “practical indicia” factors set forth were found to have colluded with Apple to raise prices
in Brown Shoe Co. v. United States,7 which the court for e-books.12 The court stated that “it is significant
explained reveal a market of distinct sellers, for whom that in a market already prone to collusion, where
the Big Five publishers are uniquely attractive and the coordinated conduct already appears to be rampant,
only realistic option for large advances for anticipated PRH’s acquisition of S&S would reinforce the mar-
top-selling books.8 ket’s oligopsonistic structure and create a behemoth
industry leader that other market participants could eas-
The court found strong evidence that “whenever a ily follow.”13
The M&A Lawyer
West LegalEdcenter
610 Opperman Drive
Eagan, MN 55123
K2022 Thomson Reuters
For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood
Drive, Danvers, MA 01923, USA (978) 750-8400, http://www.copyright.com or West’s Copyright
Services at 610 Opperman Drive, Eagan, MN 55123, . Please
outline the specific material involved, the number of copies you wish to distribute and the purpose or
format of the use.
This publication was created to provide you with accurate and authoritative information concerning
the subject matter covered; however, this publication was not necessarily prepared by persons
licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or
other professional advice and this publication is not a substitute for the advice of an attorney. If you
require legal or other expert advice, you should seek the services of a competent attorney or other
professional.
Copyright is not claimed as to any part of the original work prepared by a United States Government
officer or employee as part of the person’s official duties.
One Year Subscription E 10 Issues E $ 1,128.00
(ISSN#: 1093-3255)
2 K 2022 Thomson Reuters
, The M&A Lawyer November/December 2022 | Volume 26 | Issue 10
The court rejected every argument advanced by selling side. Indeed, there was no claim that the deal
PRH/S&S rebutting the presumption established by the would have resulted in higher book prices for
DOJ that the merger would harm competition. First, consumers.
the court found unpersuasive the argument that the
combined firm would be constrained by the remaining Conclusion
three large publishers and other smaller competitors. Although PRH has announced that it plans to seek
Second, the court dismissed as not credible the promise an expedited appeal of the decision, this decision signi-
of PRH’s CEO to allow internal competition by im- fies the emphasis the DOJ and FTC will continue to
prints owned by PRH in auctions to acquire publishing place on using the antitrust laws to prevent harm to sup-
rights. The court found this promise to be against pliers, including workers. In accounting for the current
PRH’s economic incentives, unenforceable, and easy regulatory environment, companies considering merg-
to revoke.14 Third, the court rejected the argument that ers are wise to consider the potential impact of the deal
self-publishing would be a viable option for authors of on a range of constituencies, beyond just customers,
anticipated top-selling books, noting that “self- and engage counsel early to plan for a successful
publishing is not a reasonable substitute for traditional antitrust review of their transaction.
publishers in the market for anticipated top-selling
books.”15 Next, despite efforts by firms such as Disney
and Amazon to expand into the publishing industry, the ENDNOTES:
court rejected the argument that low entry barriers 1For a detailed discussion about the decision in
would prevent the merged firm from seeking to lower UnitedHealth/Change, see our client alert, Federal
advances to authors, noting that “[n]o publisher has Court Decision in UnitedHealth/Change Highlights
entered the market and become a strong competitor Challenges to Antitrust Agencies’ Aggressive Enforce-
ment Agenda: A Win for Merger Remedies and Private
against the Big Five in the past thirty years”16 and “the Equity Divestiture Buyers (Sept. 23, 2022). https://ww
Big Five still consistently acquire the publishing rights w.friedfrank.com/news-and-insights/federal-court-deci
for 91 percent of anticipated top-selling books.” 17 sion-in-unitedhealth-change-highlights-challenges-to-a
ntitrust-agencies-aggressive-enforcement-agenda-a-wi
Finally, the court precluded any evidence of efficien- n-for-merger-remedies-and-private-equity-divestiture-
cies that would limit the merger’s anticipated harm, buyers-10733.
noting that efficiencies “play[ed] no role” in its analy- 2See Speech, DOJ, Antitrust Div., Assistant At-
sis because “the defendants had failed to verify the evi- torney General Jonathan Kanter of the Antitrust Divi-
dence, as required by law.”18 sion Testifies Before the Senate Judiciary Committee
Hearing on Competition Policy, Antitrust, and Con-
Labor Focus sumer Rights (Sept. 20, 2022).
3Press Release, DOJ, Antitrust Div., Justice Depart-
In the DOJ’s announcement of the victory in this ment Obtains Permanent Injunction Blocking Penguin
case, AAG Kanter noted that “[t]he decision is . . . a Random House’s Proposed Acquisition of Simon &
Schuster (Oct. 31, 2022).
victory for workers more broadly.”19 Supported by this
4Mem. Op. at 80, United States v. Penguin Random
precedent, we expect that the DOJ and FTC will seek House, LLC, et al., Civil Action No. 21-2886-FYP
to bring more labor “monopsony” cases—i.e., cases (D.D.C. Oct. 31, 2022).
where the agencies allege that a merger will result in 5See Mem. Op. at 64.
the combined firm accounting for a large share of 6Id. at 51.
purchases of a particular type of labor. More generally, 7Brown Shoe Co. v. U.S., 370 U.S. 294, 82 S. Ct.
the case is notable in that the harm to competition 1502, 8 L. Ed. 2d 510 (1962).
focused on the buying side of the market rather than the 8 See Mem. Op. at 26 (quoting F.T.C. v. Whole
K 2022 Thomson Reuters 3
LAWYER
LONG STORY CUT road map for future DOJ and Federal Trade
Commission attempts to challenge transactions
SHORT: COURT BLOCKS based on potential harm to workers. To that
MERGER REDUCING end, the DOJ touted the decision as “reaffirm-
[ing] that the antitrust laws protect competition
FROM FIVE TO FOUR
The M&A
for the acquisition of goods and services from
THE NUMBER OF workers.”3
COMPETITORS FOR THE Highlights from the Opinion
PURCHASE OF BOOK
In an 80-page opinion, Judge Florence Y.
PUBLISHING RIGHTS Pan found that the proposed merger of Penguin
By Bernard (Barry) A. Nigro Jr., Random House (“PRH”) and Simon & Schuster
Nathaniel L. Asker and Renee E. Turner (“S&S”) “violates Section 7 of the Clayton Act
Barry Nigro is a partner in the Washington,
because it is likely to substantially lessen com-
D.C. and New York offices of Fried, Frank, petition in the market for the publishing rights
Harris, Shriver & Jacobson LLP. Nathaniel to anticipated top-selling books.”4 This deci-
Asker is a partner, and Renee Turner is an sion follows nearly two years after the signing
associate, in Fried Frank’s New York office.
of the transaction in November 2020.
Special thanks to Madison Chajson for her
valuable assistance in the research and draft-
In challenging the deal, the DOJ argued that
ing of this article. Contact:
or the proposed consolidation of two of the “Big
or Five” book publishers in the U.S. would lessen
.
A recent decision enjoining the proposed IN THIS ISSUE:
merger of Penguin Random House and Simon
Long Story Cut Short: Court Blocks
& Schuster, two of the largest book publishers Merger Reducing from Five to Four
in the U.S., marks a significant victory for the the Number of Competitors for the
Purchase of Book Publishing Rights 1
Antitrust Division of the Department of Justice,
New FTC Section 5 Policy Statement
following three recent court losses in its efforts Targeting Unfair Methods of
to block the mergers of UnitedHealth/Change Competition Related to Mergers and
Conduct Signals Significant Policy
Healthcare,1 U.S. Sugar/Imperial Sugar, and Change 4
Booz Allen/EverWatch. In remarks by Assis- Delaware Court of Chancery Finds
tant Attorney General Jonathan Kanter follow- Personal Jurisdiction Over LLC
“Acting Manager” in Post-Closing
ing those losses, he emphasized that the DOJ is Investor Action Challenging Merger
“committed to bringing difficult cases” and With SPAC 8
declared that “[i]mprovements to antitrust Introducing Rep & Warranty Insurance
to Section 363 Sales 9
enforcement will not happen if the Antitrust
Corporate Governance Feature:
Division is unwilling to challenge aggressively Preparing for the 2023 Proxy Season
anticompetitive conduct and unlawful market in the Era of Universal Proxy 14
consolidation.”2 This case, which the DOJ chal- A New Age of Competition Law:
Thoughts on Merger Filing and
lenged on the basis that the transaction would Review 17
create undue buyer or “monopsony” power From the Editor 22
(i.e., lower compensation for authors of antici-
pated top-selling books), will likely serve as a
42826281
, November/December 2022 | Volume 26 | Issue 10 The M&A Lawyer
competition for the purchase of rights to “anticipated publisher submits a bid of $250,000 or more for a book,
top-selling books” and lower the advances paid to those that publisher has determined that the book is likely to
authors. After a 13-day trial, the court agreed with the be a top seller and knows that the competitors for the
DOJ, finding that the elimination of head-to-head com- book are likely to be limited to the Big Five.”9 The
petition between PRH and S&S and the ability of the court also relied heavily on the findings of the DOJ’s
merged firm potentially to coordinate with the remain- expert economist, as well as evidence showing that the
ing competitors would likely lead publishers to pay elimination of direct, head-to-head competition be-
authors of anticipated top-selling books lower tween the merging parties is likely to harm authors,
advances.5 noting numerous examples where the firms were the
two highest, or the only two, bidders in auctions for
The court explained that “competition between PRH
and S&S benefits authors by increasing advances paid anticipated top-selling books.10
for their books” and stated that “industry participants
In addition, the court found that the transaction was
predict that the loss of that competition would be harm-
likely to result in harm through “coordinated effects,”
ful to authors.”6 In an overall market in which five
which occur when competitors align their behavior in
competitors accounted for only 60% of the sales of
concentrated markets. 11 The court referenced the
“trade books” published for general readership, the
Second Circuit decision in United States v. Apple, Inc.,
DOJ alleged harm in a narrow submarket—anticipated
in which six book publishers, including Penguin Books
top-selling books—where market concentration is
(before its acquisition of Random House) and S&S,
much higher. The court found this narrower market to
be supported by the “practical indicia” factors set forth were found to have colluded with Apple to raise prices
in Brown Shoe Co. v. United States,7 which the court for e-books.12 The court stated that “it is significant
explained reveal a market of distinct sellers, for whom that in a market already prone to collusion, where
the Big Five publishers are uniquely attractive and the coordinated conduct already appears to be rampant,
only realistic option for large advances for anticipated PRH’s acquisition of S&S would reinforce the mar-
top-selling books.8 ket’s oligopsonistic structure and create a behemoth
industry leader that other market participants could eas-
The court found strong evidence that “whenever a ily follow.”13
The M&A Lawyer
West LegalEdcenter
610 Opperman Drive
Eagan, MN 55123
K2022 Thomson Reuters
For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood
Drive, Danvers, MA 01923, USA (978) 750-8400, http://www.copyright.com or West’s Copyright
Services at 610 Opperman Drive, Eagan, MN 55123, . Please
outline the specific material involved, the number of copies you wish to distribute and the purpose or
format of the use.
This publication was created to provide you with accurate and authoritative information concerning
the subject matter covered; however, this publication was not necessarily prepared by persons
licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or
other professional advice and this publication is not a substitute for the advice of an attorney. If you
require legal or other expert advice, you should seek the services of a competent attorney or other
professional.
Copyright is not claimed as to any part of the original work prepared by a United States Government
officer or employee as part of the person’s official duties.
One Year Subscription E 10 Issues E $ 1,128.00
(ISSN#: 1093-3255)
2 K 2022 Thomson Reuters
, The M&A Lawyer November/December 2022 | Volume 26 | Issue 10
The court rejected every argument advanced by selling side. Indeed, there was no claim that the deal
PRH/S&S rebutting the presumption established by the would have resulted in higher book prices for
DOJ that the merger would harm competition. First, consumers.
the court found unpersuasive the argument that the
combined firm would be constrained by the remaining Conclusion
three large publishers and other smaller competitors. Although PRH has announced that it plans to seek
Second, the court dismissed as not credible the promise an expedited appeal of the decision, this decision signi-
of PRH’s CEO to allow internal competition by im- fies the emphasis the DOJ and FTC will continue to
prints owned by PRH in auctions to acquire publishing place on using the antitrust laws to prevent harm to sup-
rights. The court found this promise to be against pliers, including workers. In accounting for the current
PRH’s economic incentives, unenforceable, and easy regulatory environment, companies considering merg-
to revoke.14 Third, the court rejected the argument that ers are wise to consider the potential impact of the deal
self-publishing would be a viable option for authors of on a range of constituencies, beyond just customers,
anticipated top-selling books, noting that “self- and engage counsel early to plan for a successful
publishing is not a reasonable substitute for traditional antitrust review of their transaction.
publishers in the market for anticipated top-selling
books.”15 Next, despite efforts by firms such as Disney
and Amazon to expand into the publishing industry, the ENDNOTES:
court rejected the argument that low entry barriers 1For a detailed discussion about the decision in
would prevent the merged firm from seeking to lower UnitedHealth/Change, see our client alert, Federal
advances to authors, noting that “[n]o publisher has Court Decision in UnitedHealth/Change Highlights
entered the market and become a strong competitor Challenges to Antitrust Agencies’ Aggressive Enforce-
ment Agenda: A Win for Merger Remedies and Private
against the Big Five in the past thirty years”16 and “the Equity Divestiture Buyers (Sept. 23, 2022). https://ww
Big Five still consistently acquire the publishing rights w.friedfrank.com/news-and-insights/federal-court-deci
for 91 percent of anticipated top-selling books.” 17 sion-in-unitedhealth-change-highlights-challenges-to-a
ntitrust-agencies-aggressive-enforcement-agenda-a-wi
Finally, the court precluded any evidence of efficien- n-for-merger-remedies-and-private-equity-divestiture-
cies that would limit the merger’s anticipated harm, buyers-10733.
noting that efficiencies “play[ed] no role” in its analy- 2See Speech, DOJ, Antitrust Div., Assistant At-
sis because “the defendants had failed to verify the evi- torney General Jonathan Kanter of the Antitrust Divi-
dence, as required by law.”18 sion Testifies Before the Senate Judiciary Committee
Hearing on Competition Policy, Antitrust, and Con-
Labor Focus sumer Rights (Sept. 20, 2022).
3Press Release, DOJ, Antitrust Div., Justice Depart-
In the DOJ’s announcement of the victory in this ment Obtains Permanent Injunction Blocking Penguin
case, AAG Kanter noted that “[t]he decision is . . . a Random House’s Proposed Acquisition of Simon &
Schuster (Oct. 31, 2022).
victory for workers more broadly.”19 Supported by this
4Mem. Op. at 80, United States v. Penguin Random
precedent, we expect that the DOJ and FTC will seek House, LLC, et al., Civil Action No. 21-2886-FYP
to bring more labor “monopsony” cases—i.e., cases (D.D.C. Oct. 31, 2022).
where the agencies allege that a merger will result in 5See Mem. Op. at 64.
the combined firm accounting for a large share of 6Id. at 51.
purchases of a particular type of labor. More generally, 7Brown Shoe Co. v. U.S., 370 U.S. 294, 82 S. Ct.
the case is notable in that the harm to competition 1502, 8 L. Ed. 2d 510 (1962).
focused on the buying side of the market rather than the 8 See Mem. Op. at 26 (quoting F.T.C. v. Whole
K 2022 Thomson Reuters 3
