DOJ sues to block Penguin Random House merger with Simon & Schuster

The Department of Justice (DOJ) on Tuesday filed a major antitrust lawsuit seeking to block a proposed merger of the publishing giants Penguin Random House and Simon & Schuster.

Attorney General Merrick Garland said that the suit was intended to preserve competition and fairness in the U.S. publishing market.

“Books have shaped American public life throughout our nation’s history, and authors are the lifeblood of book publishing in America. But just five publishers control the U.S. publishing industry,” Garland said in a statement.

“If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry,” he added. “American authors and consumers will pay the price of this anticompetitive merger – lower advances for authors and ultimately fewer books and less variety for consumers.”

In a joint statement released Tuesday, the two companies vowed to fight the lawsuit and said that the publishing industry is “highly competitive” and will remain so following the merger.

“Blocking the transaction would harm the very authors DOJ purports to protect,” the publishers said in the statement. “We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”

Penguin has hired attorney Daniel Petrocelli to defend the merger in court. Petrocelli, who has been involved in a number of high-profile cases, successfully defended AT&T in 2018 against the Trump DOJ lawsuit seeking to block the company’s acquisition of Time Warner.

Tuesday’s lawsuit is the Biden administration’s biggest antitrust case to date. It comes as Jonathan Kanter, an attorney who was nominated to lead the Justice Department’s antitrust division, is awaiting confirmation from the Senate.

The deal was announced a year ago, with Simon & Schuster’s parent company ViacomCBS agreeing to sell the publisher to Penguin for more than $2 billion.

The merger would combine the largest publisher in the country, Penguin, with the fourth-largest, Simon & Schuster, in a market that is dominated by five large firms.

In its complaint filed in D.C. federal district court Tuesday, DOJ argued that the increased consolidation would hurt authors who rely on the publishers as well as their readers.

“Penguin Random House and Simon & Schuster compete head-to-head to acquire publishing rights to hundreds of books every year, and this competition has resulted in substantial benefits for authors of anticipated top-selling books,” the complaint reads. “Penguin Random House and Simon & Schuster are frequently invited by agents to bid in auctions for the rights to these books, and they are often the final two bidders. Competition between Penguin Random House and Simon & Schuster has resulted in higher advances, better services, and more favorable contract terms for authors.”

“By reducing author pay, this merger would make it harder for authors to earn a living by writing books, which would, in turn, lead to a reduction in the quantity and variety of books published,” the Justice Department wrote.

The lawsuit alleges that executives of both companies understood the antitrust issues that the deal would likely pose.

According to the complaint, Simon & Schuster’s current CEO, Jonathan Karp, privately told a best-selling author last year, “I’m pretty sure that the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice.”

The DOJ also said that Penguin Random House’s global CEO Markus Dohl privately said that he “never, never bought into” the argument that the deal would allow the company to better provide a counterweight to Amazon, the largest online bookseller. According to the complaint, Dohl said privately that the deal would allow Penguin to become an “[e]xceptional partner for Amazon.”

—Updated at 1:24 p.m.