Conflict Resolution in the Ebook Era

Businesses often overlook the potential negative impact of their strategic decisions on outside parties—and end up trying to resolve their differences in court. Three disputes involving the publisher Hachette and its ebooks illustrate this risk and suggest how negotiations can avoid the need for conflict resolution at a later date.

A Case of Collusion

Back in 2007, as Apple was about to launch the iPad, five major U.S. publishers—Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster—jointly negotiated a new business model for ebook pricing. Under the existing wholesale model, retailers such as Amazon could set whatever prices they liked for the ebooks they bought from publishers. The publishers convinced Apple to switch to an “agency model” in which the publishers would set their own ebook prices and give Apple a 30% sales commission. Amazon reluctantly agreed to adhere to the new model as well.

However, the U.S. Department of Justice subsequently accused the publishers and Apple of colluding to artificially raise ebook prices. The publishers all reached agreement with the government through settlement negotiations. Apple went to court and was found guilty of price fixing and ordered to pay $450 million in damages.

The negotiations and subsequent need for conflict resolution highlight a potential risk for business negotiators who are considering teaming up with competitors. When negotiating, consider how your potential deal might affect outsiders, including customers, clients, and society at large. And consult with lawyers who know the ins and outs of antitrust law to ensure that your plans do not violate industry standards or the law.

Dirty Tricks and Conflict Resolution

In May 2014, publisher Hachette and Amazon again faced the need for dispute resolution regarding the pricing of Hachette ebooks on the online retailer. Amazon wanted pricing control over Hachette ebooks and planned to discount most Hachette digital titles to under $10 per ebook, according to the Guardian. Hachette refused. To try to force Hachette to cave, Amazon engaged in dirty tricks, including raising the price of Hachette ebooks and delaying their delivery. Sales of Hachette titles plunged, harming many of the publisher’s authors financially. Amazon’s moves attracted widespread condemnation.

Hachette might have gained negotiating leverage by offering Amazon Kindle users a significant discount on Hachette ebooks downloaded from the retailer’s competitors (such as Apple, Google, and Nook). But, due to its own lack of foresight, Hachette was prohibited from doing so, writes Cory Doctorow in the Guardian.

Ironically, Hachette was a staunch supporter of a 1998 law that gave retailers, and not publishers, control of piracy-prevention measures for ebooks. That is, having instructed Amazon to “lock” its ebooks, Hachette was legally prohibited from taking the locks off or from encouraging consumers or retailers to do so. Consequently, “Hachette has allowed Amazon to utterly usurp its relationship with its customers,” writes Doctorow. And it squandered a key bargaining chip in the process.

Publishers could level the playing field in their pricing disputes with retailers such as Amazon by refusing to put digital locks in their ebooks, says Doctorow. He urges all publishers to avoid the “Hachette trap” by releasing their entire catalog unlocked.

In November 2014, Hachette and Amazon negotiated an end to their dispute. Hachette maintained the power to set the prices of its ebooks in exchange for “specific financial incentives . . . to deliver prices,” according to Amazon.

Missed Opportunities for Negotiation

Hachette became involved in yet another dispute surrounding ebooks in 2020. With libraries closing because of the Covid-19 pandemic, the nonprofit Internet Archive expanded a program that allows users to borrow scanned copies of the printed books in its archive, Dan Cohen writes in the Atlantic.

Many of the books in this “National Emergency Library” were still copyrighted by their publishers, but the Internet Archive cited the pandemic and a novel legal theory, known as controlled digital lending (CDL), to justify its program. According to CDL, libraries should have the right to loan out “either the digital version or the hard copy of any material it owns (but not both at the same time),” explains Cohen. While CDL clearly benefits library patrons, it could erode publishers’ profits.

In June 2020, Hachette, Penguin Random House, HarperCollins, and Wiley sued the Internet Archive for copyright infringement. In March 2023, the judge ruled in favor of the publishers, citing the “market harm” the program created. The decision could prevent libraries nationwide from being able to create and lend digital copies of the print books on their shelves, requiring them to purchase digital editions of books from publishers instead, according to Cohen.

Cohen criticizes the publishers’ lawsuit as a heavy-handed response that jeopardizes libraries’ ability to meet their patrons’ needs. He proposes balancing the interests of libraries and book publishers through a narrow version of CDL.

It’s also true that the Internet Archive might have avoided the lawsuit by trying to negotiate directly with publishers. Whenever our business decisions seem likely to trigger a dispute and the need for conflict resolution, it’s wise to try to negotiate a mutually beneficial agreement rather than charging ahead.

What advice do you have for negotiators who are dealing with disputes and the need for conflict resolution?