Justice Department and Penguin Random House’s Spar Over Merger Has Begun

A federal judge on Monday began a trial that will decide whether Penguin Random House is allowed to buy Simon & Schuster, a case that could significantly affect the book publishing industry and that will test the Biden administration’s efforts to expand antitrust enforcement.

In opening statements in U.S. District Court for the District of Columbia, John Read, a lawyer for the Justice Department, said the merger “must be stopped.”

Mr. Read laid out the government’s case that the merger would reduce the number of bidders for the rights to publish what the government has called “anticipated top-selling books,” in turn driving down the value of advances paid to authors. “This lawsuit is designed to protect those authors and those books,” he said.

The $2.18 billion acquisition of Simon & Schuster would expand Penguin Random House, which is already the largest book publisher in America, and eliminate one of the other “Big Five” book houses. The industry has already undergone a fair amount of consolidation, with Penguin Random House, owned by the German company Bertelsmann, itself the product of a 2013 merger.

The case is also an early test of the Biden administration’s efforts to take on more boundary-pushing antitrust cases, in this instance, one arguing that corporate concentration is bad for workers, including book authors.

The companies have said that they believe that Simon & Schuster authors will benefit from Penguin Random House’s significant distribution resources, and that more-efficient business operations will allow them to increase author pay. And a lawyer for Penguin Random House, Daniel Petrocelli, argued in his opening statement that the government’s case had a fundamental flaw: The idea that a discrete category of anticipated best-selling books exists in the industry is not grounded in reality, he said. Publishers, Mr. Petrocelli added, often pay big advances for books that fail to do well financially.

“Every book is a dream,” Mr. Petrocelli said. “And sometimes dreams come true, and sometimes they don’t.”

The trial is expected to bring a parade of publishing executives, literary agents and authors as witnesses to the wood-paneled courtroom of Judge Florence Y. Pan.

On Monday, Michael Pietsch, the chief executive of Hachette Book Group, another of the Big Five publishing houses, testified that he believed the merger would result in a “loss in variety” of books and lower advances for authors. Mr. Pietsch said he hoped Hachette’s parent company would pursue buying Simon & Schuster if the proposed merger fell apart.

Stephen King, the best-selling author of horror novels, is expected to testify for the government.

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