The trial to decide whether the publishing giant may buy Simon & Schuster is a test of the Biden administration’s push to expand antitrust enforcement.
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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.
Wells Fargo is reactivating a hiring practice that it paused this year after a former employee revealed that it was leading managers to interview nonwhite candidates for jobs that had already been filled, according to a memo seen by The New York Times.
The bank’s practice, known as its “diverse slate” policy, requires that half the candidates interviewed for certain jobs be female or nonwhite. It also calls for the panel of people interviewing candidates for certain jobs to be “diverse.” Beginning Aug. 19, the practice will again be put in place for certain jobs, with new features added to prevent abuse, according to the memo, which was sent to managers at the bank on Monday.
The bank acknowledged in the memo that its guidelines could be improved. One problem executives found, according to the memo: “Our guidelines and processes can be overly prescriptive.”
The biggest changes will be increased training for managers and an easier approval process for exemptions to the diverse slate requirement.
There will also be a change in which open jobs must meet the requirement. The earlier version of the policy required that every job with a salary of $100,000 or more be filled only after interviews were conducted with a diverse slate of candidates.
“Instead of the previous compensation-based criteria, roles that are in-scope will now be based on job level, not compensation,” the memo said. It did not specify which job levels would fall within the requirement.
Wells Fargo suspended the policy on June 6 after The Times reported that a former employee in the bank’s wealth management business had complained that he was being forced by his bosses to interview people for jobs that had already been promised to others, just to meet the diverse hiring requirement. Overall, 12 current and former employees told The Times that they either had participated in fake interviews or were aware of the practice.
On June 9, The Times reported that federal prosecutors in the Southern District of New York were investigating whether Wells Fargo had violated job candidates’ civil rights.
When they suspended the policy, the bank’s leaders vowed to spend the following weeks talking to employees to find out how to improve the program.
“Overwhelmingly, we heard the need to improve the candidate and manager experience and the need for a stronger and longer-term commitment and investment to help employees develop their skills and grow their careers,” the memo said.
In a statement emailed to news outlets on Monday announcing the revival of the policy, Bei Ling, Wells Fargo’s head of human resources, said the bank had compared its policies to those of other banks and large companies and decided that, as a concept, requiring “diverse slates” of job candidates was a “common, good practice.”
An earlier version of this article misstated the day a Wells Fargo statement was sent to reporters announcing the revival of its diverse slate hiring policy. It was Monday, not Wednesday.
Ephrat Livni and
Credit card companies were dealt legal setbacks over the weekend in a pair of cases that challenge how they manage payments and the fees they charge.
A federal judge on Friday refused Visa’s request to be dismissed from a case that claims it conspired to help MindGeek, parent company of the website Pornhub, profit from images of child sexual abuse.
The question presented by the case is whether Visa is helping others make money from the distribution of illegal images, the DealBook newsletter reports. The court says it may have, allowing certain claims against Visa to proceed, based on its role in processing payments for MindGeek.
The suit was filed by Serena K. Fleites, who says MindGeek profited from naked videos taken when she was an underage teenager that were then posted on Pornhub. Ms. Fleites’s story was the focus of a column by The New York Times’s Nicholas Kristof in late 2020 detailing the many instance of videos of child sexual abuse available on Pornhub and how those videos had upended the lives of those featured in the videos.
“If Visa was aware that there was a substantial amount of child porn on MindGeek’s sites, which the court must accept as true at this stage of the proceedings, then it was aware that it was processing the monetization of child porn, moving money from advertisers to MindGeek for advertisements playing alongside child porn like plaintiff’s videos,” the judge overseeing the case, Cormac J. Carney of the U.S. District Court for the Central District of California, wrote in his decision.
The judge’s unusually strong language in declining Visa’s dismissal request raises alarms for payment processors. Judge Carney wrote it was not “fatally speculative” for the plaintiff to say Visa bore direct responsibility for “MindGeek’s monetization” of images of child sexual abuse. The decision signals that companies may not be able to easily distance themselves from accusations of misdeeds by their clients.
Visa, in its motion to dismiss, argued that a decision against the company would upend the financial and payment industries, forcing payment processors to police billions of transactions.
Visa condemns “sex trafficking, sexual exploitation and child sexual abuse materials as repugnant to our values and purpose as a company,” a company spokesman said in a statement. He added that Visa does not tolerate the use of its network for illegal activity and continues to believe it is an improper defendant, calling the ruling “disappointing” and saying it “mischaracterizes Visa’s role.”
The judge, though, wrote that Visa’s argument was “reminiscent of the ‘too big to fail’ refrain from the financial industry in the 2008 financial crisis,” and said asking Visa to not let its services be used to facilitate illegal activity was not a tall order.
In a separate case, the Walt Disney Company filed late Friday an antitrust lawsuit against Visa and Mastercard that is an offshoot of a 2005 lawsuit against the credit card companies over interchange fees, which they charge merchants for every transaction and pay to the bank that issued the card.
Many companies that rely heavily on credit card purchases, like retailers, argue that the hold that credit card companies have on the market allows them to effectively collude to fix those fees. And they say the result is higher prices for customers.
The litigation stems from a roughly $6 billion settlement in 2012. The initial settlement included an agreement by Visa and Mastercard to reduce the charge to process transactions for eight months. But lawmakers, including Senator Richard J. Durbin of Illinois, argued that the concessions the credit card companies offered were insufficient.
Certain large retailers, like Walmart, opted out of the settlement, hoping to get better terms themselves, as Amazon did this year. That means the lawsuit could be Disney’s way of pushing for money, better terms with the credit card companies or both.
Disney claims that Visa and Mastercard used corporate maneuvering to shroud their hold on the industry. When Visa and Mastercard were private companies, they were backed by thousands of financial institutions, including such big banks as JPMorgan Chase, that were recipients of interchange fees.
When the payment processors went public, in 2006 and 2008, it created a perception of separation between them and the banks, which some analysts said was aimed at mitigating regulatory scrutiny.
“If it’s a single company, they hoped they would not be viewed as a cartel of banks,” Harry First, a law professor specializing in antitrust at New York University, told DealBook. “A single company can set its own price and do what it wants.” (The strategy is similar to one that the National Football League used unsuccessfully in arguments before the Supreme Court years ago.)
The corporate structure changed, Disney argues in the suit, but the behavior of the credit card companies did not. Disney says that the beneficial fees that Visa and Mastercard offered the banks remained, and that the two companies dominate the industry, driving up costs.
“The debit card market is dominated by Visa and Mastercard,” the suit notes. “Combined, Visa and Mastercard comprised about 75 percent of all debit purchase volume in 2004 and comprise over 80 percent today.”
Fees continue to be a focus of legislative action, as well. Mr. Durbin and a colleague plan to propose a bill to target them.
“We do not anticipate litigating this and expect a resolution could be announced in the near term,” a spokesman for Mastercard told DealBook. Visa declined to comment on the record.
Opendoor Labs, an online home buying platform, agreed on Monday to pay $62 million to the Federal Trade Commission to settle claims that it used misleading marketing practices to persuade people to sell their homes on the site.
The company, which claims it allows homeowners to sell their homes more quickly than through a broker, deceived customers into offering their properties to Opendoor for less than they would have made on the market, the F.T.C. said Monday in a news release. The agency said Opendoor had presented home sellers with charts that showed they would make thousands of dollars more by selling their properties on the platform compared with in the traditional marketplace.
Opendoor said in a statement on Monday that it disagreed with the F.T.C.’s allegations, which the company said were tied to its business activities from 2017 to 2019.
“While we strongly disagree with the F.T.C.’s allegations, our decision to settle with the commission will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed,” the company said in the statement.
The turbulent housing market is under increasing pressure as consumers grapple with a jump in inflation, faltering home prices and soaring mortgage rates. The average rate on a 30-year mortgage climbed to 5.3 percent in July, according to Freddie Mac, a steep increase from 2.87 percent a year earlier.
Home prices rose more than 20 percent in May from a year earlier, according to Zillow, but the market has cooled since mortgage rates have begun climbing. In June, the real estate brokerage firms Redfin and Compass announced that they were laying off employees because of sinking demand and signs of a “housing downturn.”
Opendoor is one of several services in the “iBuying” space, which includes companies that use algorithms to determine a home’s value and buy it for cash. In September, iBuying accounted for 1 percent of home sales in the United States.
“Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform,” said Samuel Levine, director of the F.T.C.’s Bureau of Consumer Protection. “There is nothing innovative about cheating consumers.”