Is Amazon morally wrong but legally right?

Might Amazon, just this once, actually be in the right?

The publishing industry’s favorite punching bag du jour has gotten a lot of flack lately over a Justice Department antitrust lawsuit against Apple. As we reported earlier this spring, the DOJ filed a lawsuit against Apple and five publishers, accusing them of colluding to fix e-book prices.

The DOJ has gotten an earful ever since. Book industry advocates have lambasted the government agency for going after struggling book publishers and Amazon’s only real competition, thereby propping up the mega-bookseller’s dominance.

“I feel absolutely befuddled by the lawsuit,” New York Sen. Charles Schumer told the Wall Street Journal. “For the Antitrust Division to step in as the big protector of Amazon doesn't seem to make any sense from an antitrust point of view. Rarely have I seen a suit that so ill serves the interests of the consumer.”

“The irony bites hard,” Authors Guild President Scott Turow wrote in an open letter. “Our government may be on the verge of killing real competition in order to save the appearance of competition.”

And David Carr of the New York Times criticized the antitrust suit as the modern equivalent of leaving Standard Oil intact and “breaking up Ed's Gas 'N' Groceries on Route 19 instead.”

It’s time to take a step back.

Is it possible that amidst the deafening uproar over the DOJ’s suit – the protestations, the criticism, the comparisons – we’re missing the point? That, as much as book lovers love to hate Amazon, the online bookseller – and the Justice Department – may be actually be in the right?

That’s what Thomas Catan argues in a lucid, cogent must-read in the Wall Street Journal titled “Experts Say Government Had Little Choice in E-Books Lawsuit.”

At the root of this criticism is a misperception of the antitrust law, writes Catan.

“U.S. antitrust law doesn't seek to protect little companies against big ones, or even struggling ones against successful ones. Companies can grow as large as they want, as long as they do it through lower prices, better service or niftier innovations. Companies can even become monopolies, as long as they don't get there illegally or try to extend their power by unlawfully stifling competition.”

In other words, just because Amazon dominates the book market and drives smaller competitors out of business through its low prices and convenience doesn’t make its actions illegal.

(As Herbert Hovenkamp, a law professor at the University of Iowa, told the Journal, “The goal of antitrust policy is to protect consumer prices. It's not to protect inefficient firms from having to exit the market.”)

What’s more, writes the Journal, “antitrust lawyers scoff at the notion that the Justice Department would refrain from bringing a case if it believes it has solid evidence."

“Price fixing is kind of the first-degree murder of antitrust violations,” Prof. Hovenkamp, told the Journal. “They don't have discretion to just walk away from what appears to be a strong set of facts that, if true, are one of the most central of antitrust violations.”

In fact, the DOJ may already have shown some leniency in bringing a civil, rather than criminal, case against Apple and the five publishers.

Let’s recall what’s at stake here. There are two competing models for distributing books: Amazon’s wholesale model, whereby a publisher sells its goods to a distributor (like Amazon) for a fixed price and the distributor is free to decide the actual price for the public; and Apple’s new agency model, in which publishers set the retail price and the distributer gets a fee (30 percent in the case of Apple).

Despite Sen. Schumer’s comments, Amazon’s pricing system has actually been better for consumers than Apple’s (although it’s not better for publishers, which is why they’re fighting the suit).

When it introduced the Kindle in 2007, Amazon began discounting e-books at its own expense, setting a $9.99 price for new best sellers. By contrast, when Apple launched its iPad in 2010, it shifted the publishing industry to a new system that let publishers control the price for e-books. Under that system, the price of most best sellers rose to $12.99 or $14.99.

“What Amazon does may be harmful to the publishers, but so far it's been very good for consumers,” Spencer Waller, a law professor at Loyola University Chicago, told the Journal.

In this case, the Justice Department may actually be doing consumers a favor.

And as far as the nuts and bolts of the legal suit against Apple, Amazon – at least in this case – appears to be entirely within the bounds of law.

What do you think? Is Amazon morally wrong but legally right?

Husna Haq is a Monitor correspondent.