Just three months after it launched in the fall of 2000, BountyQuest.com, a self-described “patent-busting” Web site, declared itself a success. In January 2001 it awarded four $10,000 prizes to individuals who had presented evidence that BountyQuest believed would successfully undermine a set of specific patent claims.
One award attracted widespread attention. In April 2000 a company called InTouch sued Amazon.com and five other companies for infringing on a pair of its patents covering a type of music sampling — technology that lets users preview part of a song and tracks their preferences. But less than a year later, BountyQuest announced that it had found evidence of “prior art”: an example of a similar digital music sampling technology that long predated — and thus undermined — InTouch’s patent.
The Amazon angle added extra intrigue. Amazon, at the time, was the target of vocal criticism for its own heavy-handed approach to seeking patents on everything under the Internet sun. And Amazon’s founder, Jeff Bezos, was an investor in BountyQuest. So when one of BountyQuest’s first forays into patent-busting turned out to be a potential boon for Amazon, some eyebrows were raised at what could easily be seen as a conflict of interest.
Amazon itself wasn’t the only problem with the patent system, however. To many observers, the corporate rush to stake intellectual property claims on every possible aspect of Internet life threatened to strangle future creativity and innovation — not to mention trample all over work that had been done years earlier by programmers who had donated their code to the general public.
BountyQuest, as envisioned by its founders, was going to be a market-based approach to patent reform. By providing a forum in which interested parties could offer rewards for the discovery of patent-busting prior art, BountyQuest aimed to solve the problem of an out-of-control patent system.
One year later, BountyQuest’s supposed patent-busting experiment appears to have itself gone bust. Only about 20 BountyQuest contests have resulted in bounty-winning prior art since the site’s inception. New bounty offers, meanwhile, have slowed to a trickle; 23 contests were running when the company launched but only three contests are now open for submissions.
Most troubling of all, the InTouch case suggests that even in instances where BountyQuest has generated results, the company still hasn’t achieved much. Last month, two defendants in the InTouch lawsuit, Amazon and Liquid Audio, settled their patent infringement cases with InTouch, agreeing to license the InTouch patent rather than fight it. And in both cases, say parties involved in the settlement, BountyQuest’s discovery never came up.
“It was never used in the case,” says Joshua Kaplan, founder of InTouch, a 12-year-old digital music company based in Berkeley, Calif. “The defendants didn’t bring it up.”
BountyQuest’s CEO, Charles Cella, says his company’s discovery of prior art came too late to play a role in the InTouch suit. But BountyQuest’s failure to affect the InTouch patent, combined with the market’s apparent lack of interest in the bounty-hunting approach, may signal more serious problems with the whole idea of market-based reform for the thorny legal problems involving intellectual property. Despite tremendous media attention and Bezos’ star power, BountyQuest’s impact has been minimal. The U.S. Patent Office continues to rubber-stamp thousands of computer-related patent applications while BountyQuest largely remains relegated to the sidelines.
Cella is optimistic, convinced that his company will survive, and that it fulfills a useful and important role. But can it stem the tide of bad patents? Can BountyQuest, or any market-based approach, create the kind of change that so many have been clamoring for since 1999?
Other opponents of the current patent law status quo are proposing their own reforms — and some of the new ideas also aim to solve the problem from below, by creating market-based alternatives that use the profit incentive to force positive change. In a way, they are holding on to one of the cherished dreams of the Internet bubble — that in the New Economy, everything will be different, and more efficient, if we can just figure out the right online business model. But BountyQuest’s track record over the last year also suggests that a different, more traditional approach may be necessary — legislative reform to fix a broken system.
The story of BountyQuest begins with Amazon.com. In February 2000, the giant bookseller announced it had been granted a patent for its affiliate system. Bezos had already earned criticism for patenting the technique of one-click shopping, but the idea that he could also protect the concept of rewarding business associates who refer customers through a hyperlink struck many as absurd.
The Net reacted with electric ire. A week after Amazon won the affiliate patent, more than 1,300 people united at NoWebPatents.org, threatening to boycott Amazon unless it gave up its strategy of patenting “obvious” and widely used technologies. At the Web site run by book publisher O’Reilly & Associates, visitors posted about 3,500 responses to CEO Tim O’Reilly’s critical open letter to Bezos. Amazon’s own discussion boards brimmed with anti-patent messages.
At first, criticism focused on Amazon for what many felt was overreaching behavior. But over time, the patent system itself became the favored target. Taking their lead from documents like Pamela Samuelson’s 1994 Columbia Law Review article “A Manifesto Concerning the Legal Protection of Computer Programs” — which argued that software patents threatened to hinder innovation — programmers and free software leaders began to turn the fight against bad patents into a crusade. Software patents “obstruct software development, and prohibit free software,” explains Richard Stallman, founder of the Free Software Foundation.
“The only software patents that are not bad are the ones that will never be enforced,” he adds.
Even those who took a more moderate line agreed that patent applications should only be issued after intense scrutiny — particularly in regard to exploring whether previous solutions, or prior art, already existed. According to critics who included Greg Aharonian, publisher of the Internet Patent News, the U.S. Patent Office didn’t take its job seriously enough. Computer-related patent applications spiked to 15,606 in 1998, up from 9,250 in 1997, reported Aharonian. But rather than increase the number of examiners to handle the load, the office seemed content to simply do less research.
“On average, issued software patents are missing three or four prior art examples that should have been cited,” Aharonian said in a March 2000 interview. “Examiners don’t know how to search effectively.”
The Patent Office, then and now, denies Aharonian’s claims. “There is no way that anyone can determine what art an examiner considered without looking at the file wrapper,” says Brigid Quinn, a PTO spokesperson, referring to the complete body of documentation that accompanies each patent award. “Greg did not do that.”
In the Patent Office’s defense, Amazon’s affiliate patent, and InTouch’s two downloading patents — cite at least a dozen sources, many of them available online.
But in an odd twist, by March 2000 Jeff Bezos had added his name to the list of agitators for change. In a letter posted on Amazon.com, he slammed the patent system and suggested several changes. Specifically, he sought the creation of a special set of laws to govern software and business-method patents, to shorten the life span of such patents and to create a database of prior art to help educate the Patent Office about existing innovations.
“Bottom line: fewer patents, of higher average quality, with shorter lifetimes,” he concluded. “Fewer, better, shorter. A short name might be ‘fast patents.’”
Enter Charles Cella, a practicing patent attorney. Cella didn’t believe that the entire system needed fixing, nor was he necessarily opposed to the idea of software patents. He simply figured that there was a market opportunity in helping patent examiners determine what innovations really were novel and unobvious enough to deserve protection.
“There are a lot of bad patents out there, and there are a lot of valid patents out there,” he told Salon in October 2000. “What needs fixing is the system of prior art.”
Cella obtained investment from both Jeff Bezos and Tim O’Reilly, thus guaranteeing media attention and street credibility. And at first, all went well. Patent lawyers said they were willing to give BountyQuest a try. Free software geeks and civil libertarians welcomed the idea. O’Reilly even gave the site a high-profile kick-start, by agreeing to pay $10,000 to anyone who submitted prior art that invalidated Bezos’ one-click shopping patent.
Amazon’s involvement in BountyQuest proved to be a double-edged sword. First, the award-winning prior art submission invalidating InTouch’s downloading patents raised eyebrows. Then, when BountyQuest announced that no prior art had been discovered undermining the one-click patent, others began to wonder.
Today Cella and O’Reilly dismiss the supposed scandal as an aberration and a distraction. “This is completely ridiculous,” says O’Reilly, addressing the one-click patent issue. “Amazon had nothing to do with the judging on the submissions. BountyQuest sent me two big binders with everything that had been submitted. They told me the things that seemed most relevant to them, but I made the final decisions — and in fact, I thought that a couple of things were more compelling than they did, as patent lawyers, so I awarded a prize even though they thought that nothing definitive had turned up.”
But scandal or not, BountyQuest had larger problems. There just didn’t appear to be a market for its service. Cella had hoped that BountyQuest’s initial successes at discovering prior art would knock out at least one or two bad patents, which would bring the site more attention, not just from the press, but also from lawyers and the U.S. Patent Office. But the Hollywood climax or “splash cases,” as Cella calls them, never came.
BountyQuest tried to overcome the inability to build momentum by cold-calling patent lawyers and trying to sell them on the idea of running a contest for one of their cases. But few have proved willing to bite.
Randy Lipsitz — a partner at Kramer Levin Naftalis & Frankel in New York — who remembers getting calls from BountyQuest, says he didn’t use the company because he never had a client that felt satisfied with the old way of doing things. “There are experts out there who are knowledgeable in the field and you typically go to them,” he says. “Prior art is information that needs to be mined. It needs to be put together like a puzzle. It requires expertise.”
It also requires, suggests one BountyQuest competitor, a better appreciation of the whole market for prior art — separate from the ideological goal of busting bad patents. Examples of prior art are commodities in and of themselves. If you can prove you’ve got prior art, you can sell it to a company wishing to bolster its own patent defense plans.
“BountyQuest was always a joke to those who understand prior art searching,” says Greg Aharonian, who makes his living busting patents. “Professional searchers like myself typically bust patents for much less than what BountyQuest charges, and those patents we can’t bust, well anyone smart enough to figure out how to find the prior art will know enough about the industry to go straight to the players — law firms, companies — and sell the prior art directly, cutting out the BountyQuest middlemen.”
“Bezos and O’Reilly were never seriously interested in patent quality,” he adds. “Bezos just used O’Reilly to help Amazon public relations. That Amazon ended up licensing the InTouch patent just shows how stupid the whole thing is.”
Instead of relying on the patent market to adopt new ideas like BountyQuest’s, government must intervene and create change, Aharonian says.
“One reform is to require applicants to do prior art searches, as opposed to the current rule that they disclose what they know,” he says. “The current rule allows them to wimp out by saying, ‘We didn’t know because we didn’t search.’”
Others are calling for more radical government reform. Richard Stallman, founder of the Free Software Foundation, argues Congress should exclude software from the patent system. “That,” he says, “would really solve the problem.”
Lawrence Lessig, Stanford law professor and author of several books on code and intellectual property, takes a slightly more moderate stance. He argues that the PTO should never have started approving cyberspace patents in the first place. By allowing patents to cover innovations in software, the PTO dramatically expanded the scope of intellectual property law largely through a form of institutional inertia. “Rather than reason, what governs the current patent debate is bias — bias in favor of a system that seems right just because it seems old,” he writes in his latest book, “The Future of Ideas.” “But the relevant system is not old — it is being expanded in ways that would shock lawyers of a generation ago.”
To stem the tide of cyberspace patents — which essentially give creators a government-backed monopoly on the idea that’s patented — the PTO should not necessarily just kill the possibility of software patent, as Stallman suggests. But before approving more applications, the agency should first have to prove that software patents serve the larger goal of encouraging innovation. “We will never know what benefit this regulation provides,” Lessig argues, “until we begin to demand that the regulation prove itself.”
And even after this test is held, assuming software patents pass, Congress should go further, Lessig argues, by expanding the laws of disclosure. Software inventors now only have to reveal an idea’s general description; they should also have to make the source code public.
Few of these experts have given up on market-based reform. Lessig and other academic researchers, in fact, will soon launch Creative Commons — a market-based alternative to the intellectual property system that will offer free, customized licenses for artists, writers, programmers and others who want to, say, allow students to download their program’s source code but not large companies.
Eben Moglen, a Columbia law professor and counsel to the Free Software Foundation, also has an idea of his own. He suggests collecting enough software-related prior art in one place to gain the kind of momentum that BountyQuest lacks.
“My impression is that the [BountyQuest] model (‘We’ll ask the questions and wait for others to come up with answers’) is less effective than (‘Here’s an immense database of answers waiting for questions, and by the way if you’ve got answers we don’t have, contribute those too’),” he says. “A running nucleus, as the successful project leaders will tell you, is the seed that gets development growing.”
But will any of these ideas be enough to transform the system, to staunch the flow of bad patents?
Cella and O’Reilly still believe that market-based reform is the best option. Joshua Kaplan, InTouch’s CEO and a regular defender of the patent system, also figures that companies like BountyQuest are far from useless, and possibly helpful.
But the government is already beginning to awaken from its slumber. The Federal Trade Commission held the first hearings on the patent issue Feb. 6. And while slow, some say that the kind of reform that government can bring might be just what the patent system needs.
Some problems — such as the call for source code disclosure — can only be accomplished through legislative action. And BountyQuest’s experience reveals just how hard it could be for any market-based idea to gain traction.
“The intellectual property system is resilient, and hard to reform,” says Mark Lemley, an intellectual property expert and law professor at Berkeley.
“BountyQuest was a great idea and may still prove to be, but you must keep it in context,” says Lessig. “It is a great idea for an awful system.”
Even Cella has tempered his rhetoric. While he says that he’s still “extremely skeptical about legal or political reforms” because “they take forever, and they are almost always subject to the law of unintended consequences,” he also no longer focuses so heavily on what BountyQuest can do for the system. Instead, he speaks of broader changes. “We alone aren’t going to provide enough of a reform,” he says. “There needs to be more.”
Will those who followed Cella into the wild-blue yonder of market-based reform also start to take a softer line on civic activism? To truly fix the patent system, they’ll have to do more than tout the Net’s ability to transform the world. They’ll have to do more than trust BountyQuest.
As Stallman puts it: “BountyQuest can do more good than harm — provided we don’t mistake it for a real solution.”
The Brooklyn Book Festival’s website debuts a new feature this year called OnePage. Every week from March through September, OnePage will post part of a previously unpublished work — chunks of correspondence, scenes from books in progress — by authors such as Darcey Steinke, Martha Southgate, Paula Fox and Stefan Merrill Block. There will also be mini-profiles of participating small presses, including indie mainstays McSweeney’s and Akashic.
That a Brooklyn book festival would promote small presses and their authors isn’t surprising. But the sponsor of OnePage has raised a few eyebrows. As the festival’s press release noted, “The project is made possible with a grant from Amazon.com.”
Yes, much of the literary world is in full-throated revolt against Amazon’s dominance — bookstores fear Amazon will push them out of business, authors worry about deep discounting, and the Department of Justice is considering the major publishers’ challenge over the price of e-books. But amid the public and private rancor, the massive e-retailer is very quietly trying to make friends in the book world. Its strategy is simple and employs a weapon Amazon has in overwhelming supply: Money.
The Brooklyn Book Festival is just one of many recent beneficiaries of Amazon’s largess. According to a list on Amazon’s site, prestigious groups such as the PEN American Center, journals like the Los Angeles Review of Books, One Story, Poets & Writers and Kenyon Review, mentorship programs such as 826 Seattle and Girls Write Now, and associations including the Lambda Literary Foundation, Voice of Witness and Words Without Borders have all received grants.
While the dollar figures are not always announced, according to interviews and press reports, many recipients said they have received between $20,000 and $25,000. With the more than 40 current grants listed on Amazon’s site, this suggests the company distributes approximately $1 million annually to small presses and other literary-minded nonprofits. (Publishing sources confirmed that number, but Amazon would not.)
At a time when independent publishing is struggling to survive, in part due to the influence of Amazon, recipients say that these grants offer crucial — if ironic — life support. Sometimes the grants pad out thin margins of survival, and make it possible for worthy programs to maintain their tiny staffs. And there’s no question the grants support legitimately important work: Literature in translation, international poetry, smart criticism, youth literacy efforts.
If few Amazon customers know anything about the company’s growing charity presence in the world of literary nonprofits, this is by design. Since launching its grant program in 2009, Amazon has kept its efforts low-key. Indeed, Salon’s repeated requests to discuss the grant program with Amazon — or to interview Jon Fine, Amazon’s director of author and publisher relations and the man who distributes the money — were all declined.
That silence cuts both ways. A gift from Amazon is considered the devil’s kiss in many corners of the publishing world, and many grantees are in no rush to blow a ram’s horn announcing their acceptance of money, either. (Many grant recipients interviewed for this story didn’t want to say anything negative or positive about Amazon, concerned either with offending Amazon on one hand, or betraying the anti-Amazon indie ethos on the other.)
Because both sides understand the delicate nature of the dance, the only stipulations attached to Amazon’s grants are a brief acknowledgment tucked away on a back page, and a short press release sent to supporters and members of the project. Those receiving these news releases generally consist of fellow authors, editors and members of America’s indie-publishing ecosystem. In other words, some of the only people left in the world who not only never learned to love Amazon, but actively hate its grinning yellow guts.
So what’s the point of contributions that get little publicity? Does Amazon genuinely want to be a white knight, unconcerned about the credit? Or do the grants represent a kind of blood money? Is the real goal of the grant program to keep friends close and enemies closer, by showering influential, articulate and potentially critical voices in the publishing community with sacks of no-strings cash?
“It’s the bully on the playground handing you a lollipop,” says Shirin Yim Bridges, publisher of Goosebottom Books in San Francisco, which has not received a grant from Amazon. “I mean, what do you do?”
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The pillars of Amazon hatred — recently recapped by the Authors Guild’s Scott Turow on Salon — are arranged like this. Critics allege that the Seattle-based company, led by Jeff Bezos, its ex-Wall Street CEO, engages in predatory pricing. They claim that Amazon bullies small publishers into signing price and promotional contracts that threaten their already slim margins, and doesn’t hesitate to unplug the “Buy” buttons of those who resist. While the company claims a foundational book-loving ethos, some suggest it wages total war against other institutions that sell books and embody book culture.
Amazon is picking up its literary largess during an especially charged season in the company’s relationships with the rest of the book world. For the first time, the “Big Six” publishers — HarperCollins, Random House, Hachette, Simon & Schuster, Penguin and Macmillan — have refused to sign Amazon’s latest annual contract. The main sticking point is exorbitant increases in “co-op promotional fees” for e-books that the publishers see as an illegal gouge by another name. One person familiar with the details of the proposed 2012 contracts that Amazon has submitted to major New York publishers described them as “stupifyingly draconian.” In some cases, he said, Amazon has raised promotional fees by 30 times their 2011 cost. In saying no, the big publishers are following in the footsteps of the Independent Publishing Group, a major indie distributor representing dozens of small presses that refused Amazon’s increases earlier this winter and soon saw the “Buy” buttons on more than 4,000 of their titles promptly delinked.
This standoff comes as the Department of Justice considers the antitrust implications of the Big Six and Apple’s refusal to let Amazon set the price of Kindle titles at $9.99. Then there is Amazon’s bold, long-term gambit to take on publishing houses altogether with them with its in-house Amazon Publishing project.
That adds extra movement to the philanthropic knuckleball of the company’s recent patronage of small publishers. Is the program simply a calculated corporate response to past accusations of stinginess? Is it part of a long-term strategy to divide and conquer the last bastions of Amazon’s critics, while winning over some of the very people Amazon may find useful as it develops its print-on-demand and e-book business?
It depends whom you ask. Of more than a dozen grantees Salon interviewed, some completely disassociated Amazon’s charity from its business practices. Others were more conflicted, but saw nothing to gain by dwelling on the source of the funds or turning their cash-strapped offices into an Ethics 101 seminar. Others saw Amazon’s grant giving as something to be feared: An evolutionary skill developed by a natural and intelligent predator growing ever stronger off the blood of its prey.
“The grants are a blatant attempt to buy goodwill from an industry that they’ve ravaged,” said one veteran indie publisher who asked not to be identified because he’s involved in an Amazon-funded project. “They are a rapacious, horrible company from top to bottom. But they have all this excess capital, so $25,000 here and there is nothing to them. And it’s working. People say, ‘Oh, look, they’re funding a translation prize, what could be wrong with that?’ Yet everything about them is still evil.”
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But the devil’s checks never bounce. The above Amazon hater still took the money. The truth is, there probably aren’t any underfunded indie lit institutions that haven’t, or many that wouldn’t, given the chance. Nor are there many people willing to argue they shouldn’t.
“They’re funding excellent things focused on emerging writers that create new work,” says Jeffrey Lependorf, president of the Council of Literary Magazines and Presses, an Amazon grantee. “Amazon operates a dangerously large part of the marketplace, and many of us are trepidatious about the power they wield. But they’re not pulling a fast one here. They’re a giant corporation doing what large corporations do, which is sponsorship [with the goal] of gaining the imprimatur of that to which the money is given.”
The tension is plain enough: The same people most familiar with and bitter about the bully’s methods are often the same people most in need of lollipops. Amazon’s grantees tend to be small and broke. They do not receive the kind of government support they would get in many European countries. A sponsored project can keep the lights on, put out the next title or series, and provide financial cushions to educated professionals who have mastered the art of flirting with, and occasionally bedding, the poverty line.
This is especially true of literary translators. Along with its own translated feature series, AmazonCrossing, the company funds several original translation projects, including the PEN Translation Fund and Open Letter’s Best New Translation Award, to the tune of $20,000 annually. The result has been some new friends for the Yellow Giant. “Translators love Amazon,” says Chad Post of Open Letter, an Amazon grantee and publisher of translated fiction at the University of Rochester. “They’re working for maybe $500 a book, books no one wants to touch. Then Amazon comes along and suddenly they’re benefiting from an industry that doesn’t help them, ever. Five thousand dollars is enormous to them. I can understand people are concerned with Amazon’s power in the marketplace, but I have a hard time chastising them when they directly benefit people who struggle their whole lives to do what they think is important.”
Many of Amazon’s grants have a broad trickle-down effect that puts hundreds of dollars in a lot of pockets. Amazon’s $25,000 grant to the Brooklyn Book Festival, for example, is spread out among numerous writers with small presses and associations, including Coffee House Press, Hanging Loose Press, Coach House Books, PM Press, McPherson and Co., Archipelago Books and Poets Wear Prada. Grants targeting writing programs reach the next generation of writers whom Amazon might one day sign up to Amazon Publishing. Recipients include the Association of Writers & Writing Programs, Girls Write Now, Asian American Writers Workshop, New York Writers Coalition and the Alliance for Young Artists & Writers. Smart new journals have also received money, such as the recently launched Los Angeles Review of Books, an online book review site. As newspapers have cut back on books coverage, paid outlets for critics have dwindled over the last decade.
“We are thrilled with the grant from Amazon.com, which is going to allow us to pay more writers and editors,” says Los Angeles Review of Books editor Tom Lutz. “These days, if you find money for writers, you take it. It is a drop in the bucket, given all the out-of-work journalists and incredibly shrinking book advances, but it is real money. Yes, Amazon is a controversial company, but this is not a controversial program — no one, as far as I have heard, has said, ‘No, thank you.’”
Nor has anyone yet heard from a Big Six publisher eager to fund a translation award of their own.
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The man who controls Amazon’s purse strings, and is tasked with outreach to the literary community, is a 40-something lawyer named Jon Fine. Fine’s previous positions, listed in biographies and his LinkedIn page, show he’s comfortable with a range of people across the political spectrum, from liberal tastemakers to boardroom insiders. He was a media counsel for King World when they syndicated “Inside Edition” (coinciding with part of Bill O’Reilly’s tenure as anchor) and several reality shows. He moved to NBC as senior media counsel in November 1996, where he worked with late-night shows including “Saturday Night Live” and several news divisions. Before joining Amazon in 2006 as an associate general counsel for media and copyright issues, he spent five years as the vice president and associate general counsel for Random House, where he led the legal affairs division for Alfred A. Knopf and Random House of Canada.
In November 2008, Fine became Amazon’s first director of author and publisher relations and was put in charge of a “community fund” worth, by many estimates, $1 million annually. He has since become a fixture at book fairs and publishing events around the country, where he leads seminars, joins panels and generally hams it up with friends in the business, often seeking tips on grant candidates. (Again, Fine did not return multiple written and phone requests for an interview.)
Most everyone agrees that Fine is a laid-back, likable fellow, especially by Fortune 500 standards. Although he doesn’t pretend to be anything but a company man, he cuts checks with just enough sly and endearing self-awareness. “My job is to make an 800-pound gorilla seem like only a 200-pound gorilla,” he’s known to say. Combined with his background in publishing, the result is an effective go-between for repping Amazon to indie artists, publishers and writing program directors. “He’s a book lover and genuinely cares about books,” says the CLMP’s Lependorf. “Fine has a great eye for great indie causes that don’t get funded otherwise.”
Fine may be a book lover, but he still works for a CEO who famously said, “I get grumpy when I’m forced to read a physical book.” And he himself is no stranger to what some call Amazon’s darker side. Among his specialties is antitrust law, and he is said to remain part of the company’s notoriously demanding legal brain trust. “Jon Fine embodies the two faces of Amazon,” says one of his grantees who asked not to be identified. “I like him a lot and think his heart is in the right place, but he comes from the legal side.”
Even while working a room in indie-press savior mode, Fine can bare his fangs. Dennis Johnson of Melville House Books, who has become something of a legend as a fearless and relentless on-record Amazon critic, remembers Fine approaching him at the 2011 Associated Writing Programs conference. In fall 2010, Johnson had withdrawn Melville House from the Open Letter Translation Award, rather than be associated with an Amazon-funded project. “The first morning of the conference, everybody kept telling me that some guy from Amazon was looking for me,” says Johnson. “Eventually, Jon Fine walks up to me and says, ‘I just wanted to thank you for giving us a world of publicity.’ In other words, ‘We won.’” Johnson says the company has also sent reps to intimidate him into accepting contracts. “These young guys in suits come up and stick their fingers in my chest with a message that amounts to ‘Get with the program or [perish].’ This is the class of Amazon,” he says.
After Johnson pulled Melville House from the Open Letter award, he heard from translators and small publishers around the country. Some were livid. How could he deprive his translators of an all-too-rare chance to make some coin? Others expressed a whispered respect, but said they were in no position to follow suit. As if in confession, some admitted to have recently taken money from Amazon. “One of the reasons they’re finding people so eager to accept their money is they have created a desolate landscape where that money is more necessary than it used to be,” says Johnson. “People are more willing to co-opt their ethics as a result. Not everyone is proud of it. I think a lot of the giving is not known for that reason.”
Johnson’s long crusade against Amazon has for the most part been a lonely one. “I admire Dennis’ rebel spirit,” said one small publisher who declined to go on the record. “It’s very brave. You can’t really speak out publicly against them. They’ll hear. It’s amazing. You say something in a short blog interview, and they know.”
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The fact overshadowing every Amazon debate is the company’s position as the world’s largest seller of books. It is so large that those now teamed up against Amazon in the fight over agency pricing — the right for publishers to set their own prices — is a new alliance of former enemies. In 1994, an association of independent bookstores sued the major publishing companies for discount rates they said favored the chains. The publishers in turn saw chains like Borders and Barnes & Noble as the enemy for putting a squeeze on their margins. “Discussion of terms goes back before Amazon,” says Jim Milliot, a longtime observer of the industry at Publishers Weekly. “What makes this [standoff] with Amazon stark is that they take the ‘Buy’ buttons off the website. To a lot of people, that seems unfair, and it catches a lot of attention. At least the chains always sold the books.”
Publishers large and small are on the same side as Barnes & Noble and Apple in challenging Amazon’s attempt to gain a death grip on the exploding e-book market. Amazon’s success, say its critics, will lower price expectations for physical books to the point where they become untenable for the Big Six’s business model.
The current standoff between the Big Six and Amazon is a game of chicken that will end in some sort of compromise. Amazon is the biggest customer for publishers, and it is entirely possible that Amazon will succeed in making them increasingly irrelevant with Amazon Publishing — signing authors and distributing their books directly to Amazon’s massive customer base. The company has already proven with Kindle singles and other digital exclusives that they can profit by creating content and selling it directly to readers on an Amazon-created device — and without any of the legacy infrastructure costs hobbling big publishers and bookstores.
In the future, publishers large and small may be forced to live in an Amazon world in which the company produces most books and sets whatever prices it wants. Everyone else, meanwhile, will fight for crumbs from one of Amazon’s $25,000 grants. These grants may continue to buy bits of gratitude and goodwill expressed in tight smiles, but it is unlikely to result in genuine affection for its corporate soul.
“The grants give Amazon something to point to, but people don’t see Amazon’s business practices any differently,” says Chad Post. “It’s the same as with any corporation. Money is money. I take money from Citibank, and I fucking hate Citibank.”
Late last week, the Justice Department warned Apple and five of the nation’s largest publishers that it was planning to sue them for price fixing. At issue is the agency model, a method of wholesaling e-books in which the publisher sets the retail price and the retailer takes a 30 percent cut. Most print and many e-books are sold under the traditional wholesale model, in which publishers sell books at a discounted price, and the retailer can resell them for whatever price it likes.
The unnamed player in this drama is Amazon, which had been selling e-books at a loss until two years ago, when the iPad came along and publishers used the emergence of the new device to pressure the online megaretailer into adopting the agency model, too. If Amazon wanted to sell e-books from the Big Six (as the six largest book publishers are called), it could no longer sell those titles for $9.99.
Publishers actually make less money with the agency model, so why have they insisted on it? The change was designed to limit the growing dominance of Amazon over American book retailing. On Monday, Scott Turow — the bestselling author of “Presumed Innocent” and other legal thrillers, and the president of the Authors Guild — posted a letter to members on the Guild’s web site. In it, he pronounced the Justice Department’s actions bad news for authors, “grim news for everyone who cherishes a rich literary culture,” and (contrary to first impression) ominous for book consumers. I called him up to find out more.
What are some of the Guild’s problems with Amazon?
First of all, so that I don’t get dismissed as an ingrate, I should say that Amazon has been a boon for bestselling authors. Authors get paid on the basis of the cover price for a hardcover book. By discounting, which is something that chain stores started and Amazon continued, they have lowered the barriers to book buying in ways that have been personally extremely beneficial to me.
Because you get paid the same amount regardless of how much the retailer charges for the book, and the discounting encourages more people to buy the book?
Exactly. These are not personal complaints. There are lots of things about Amazon for which they deserve credit. They’re innovative. There are lots of very, very happy Amazon customers. I’m not here to dispute that Amazon has been personally good for me or to say that they haven’t been, so far, good to their customers.
So what’s the problem?
The concern is that they are getting so large and they compete so ruthlessly that there’s a lot of fear for what the world with Amazon in charge is going to look like.
The Guild’s beefs with Amazon became pronounced over the issue of the resale of new titles some years ago. This was something that Amazon pioneered. They would sell you a [just-released] book on Day One, buy it back from you on Day Two, and then resell it to another customer on Day Three. This was legal, but certainly not what anybody ever intended.
Traditionally, in hardcover, that’s been basically a split of the proceeds between the author and publisher. (An aside: That’s something we’re fighting with publishers about in the digital world.) So Amazon decides to go into competition with the publishers by reselling the book they just bought. The publisher gets paid nothing, and neither does the author. It’s a pure profit for Amazon.
Now, the reason you don’t see used bookstores within new bookstores is that the used books compete with the new books and the publishers supplying the new books would object. Either you’re doing business with me or you’re competing with me. I’m not going to sell you books so you can take some percentage of sales.
The problem of course was the Amazon had gotten so big that publishers were afraid to resist that. It’s not the mere fact that they’re competing [with their own suppliers]. I can certainly understand that it’s good for consumers to be able to buy a book two days later at a lower price. It’s the fact that the publishers were afraid to dismiss Amazon.
Which is what they would do with a regular retailer who was doing the same thing but had viable competitors?
Right, and of course, Amazon was undercutting authors in the process. We tried to persuade them to just window this [delay making used copies of brand-new books available for a period of time, the way the release of the DVD of a movie is delayed until after it has played in theaters]. That didn’t work. It was a muscle-flexing exhibition by Amazon, saying, “We’ve got so much market power, you guys can’t do what you’ve traditionally done and take your goods elsewhere. We represent at least 30 percent of the book market.”
I don’t like losing sales, but the real problem is at the margins. Midlist authors have been struggling to survive for decades now. If you start eating into the publishers’ returns, then at the bottom of the food chain, those books are just not going to get published. We have seen that happen.
Are there other examples of Amazon using its predominance?
They now control the print-on-demand market. That’s when you buy a book and only then does a service print a copy — literally on demand. [This is a method used by academic and small presses, as well as by authors with otherwise out-of-print books.] Amazon bought a POD service called BookSurge. Then they informed their customers — university presses and some other publishers who the Guild had organized to do POD for Authors Guild members — that they would not list their books on Amazon’s site unless they paid BookSurge more for their services.
I don’t know how they defend themselves on this one. That’s another very ominous sign to the book industry and authors.
What about their history with e-books?
They deserve a lot of credit for the Kindle, for yoking e-ink with this nationwide wireless network. It’s a great innovation. And they said to the publishers, “It’s really important to us in introducing this platform that e-books appear at the same time as the hardcover edition.” Publishers said, “Oh, we’ve seen your tricks before, Amazon! Why would we ever do that?”
So Amazon says, “We’ll pay you the same amount we pay you on a hardcover.” So publishers think that sounds fine, how can they complain about that? They agree and are then stunned when Amazon announces that they’re going to sell every e-book at a loss, for $9.99. That’s an average loss of $4 to $5 a book.
Why would Amazon do that?
I suppose they could argue they were doing it to sell devices and that may well have been one of their intentions. It had the additional benefit of making it much harder for any of their competitors to enter the market.
For example: A lot of people have the habit of going into a physical store, looking at books and then turning around and buying the e-book wirelessly from Amazon. Had it not been the case that you had to sell an e-book at a $5 loss, bookstores would have been able to say, “Sure, bring your device with you and we’ll sell you the e-book right here.”
Bookstores are pretty hard-pressed by book discounting as it is, and the idea of selling ebooks at a loss made it impossible for them to enter the marketplace in competition with Amazon.
What about the proprietary format of Kindle? Didn’t that also make it hard for competing e-readers to enter the market?
You couldn’t read all those books you bought from Amazon on a competitor’s device — you can now, if you have an iPad, but you couldn’t then.
The nook is widely regarded as the better e-reader device, but if you’ve accumulated a library of Kindle titles, you can’t take them with you if you decide to switch. [Technically, you can, but most users would find this quite challenging.]
Barnes and Noble developed the nook because they really had no choice but to compete with Amazon. They were struggling at that point, and I personally don’t think they’d have been able to survive while losing $5 on every book. There simply were not a lot of people jumping into that market to compete, not with the prospect of losing $5 on every book sale. From the outside, it looks like the pricing was not just a loss leader on the devices, but a way to discourage competition.
How did Amazon’s e-book pricing affect authors?
One way that 25 percent of net became the standard royalty for e-books was because publishers said, “We all know they can’t go on selling e-books at a loss forever and sooner or later this pricing structure has got to change.” They told authors they couldn’t agree to a different royalty because everyone knew that Amazon wouldn’t be paying them $14 to $15 per title indefinitely.
You’re implying that Amazon planned eventually to use the consumer’s habituation to $9.99 books to force publishers to charge Amazon lower wholesale prices for books. They’ve tried to do that recently with some small presses, removing their titles from Amazon unless the presses agree to sell their books at rock-bottom wholesale prices. And publishers would have no choice but to agree because every other competitor would also have been driven out of the market by Amazon’s predatory pricing?
Certainly, that’s what publishers assumed.
The other thing Amazon could have done once they had the market to themselves — and this is virtually inevitable — is that they would have raised prices to consumers.
That’s part of the less-known history behind anti-trust laws. Once a large company has spent its capital to fund predatory pricing and drive its competitors out of business, there’s no reason to keep selling for cheap. The low prices don’t last.
Right. Look, if what they’re into is maximizing profits, then if they were to have a monopoly there’d be no rationale not to use the monopoly power to increase prices to consumers. Now, if I were on the other side, working for Amazon, I’d say “Show me where I’ve done that.”
Presumably, they haven’t done it yet because they haven’t achieved the monopoly yet. Historically, that’s what monopolies always do.
Correct. That is historically what monopolies do. There is plenty of precedent for that. It’s only rational to fear what they’re going to do with this accumulation of power.
Again, the concern from the author’s perspective is that e-books are putting a tremendous downward pressure on the price of books in general. That’s putting tremendous pressure on publishers to survive. And I think a world in which online book selling is driving bookstores out of existence is a pity.
How did Amazon respond to the entrance of Apple and the agency pricing system?
Apple offered to sell books on the iPad using the agency model — which is what they use for iTunes — and the publishers one by one agreed to that. Then they told Amazon they were going to follow this new model, and that they were going to produce the e-books themselves rather than Amazon doing so.
When the first publisher, John Sargent [of Macmillan], told them that, Amazon responded by removing the buy buttons not just from all of Macmillan Publishing’s e-books — about which you can say, yeah, there’s a legitimate dispute — but from their print books, too. Paper, physical books! It was another demonstration of their ability to abuse their market power.
They used their market power over an item where pricing was not in dispute to punish a publisher for taking what Amazon regards as an unfavorable position in a different market.
Why should where their books are bought make a difference to authors?
New authors traditionally are nurtured by bookstore personnel, especially in independent bookstores. These people literally hand sell books to their customers, by saying, “I’ve read this. I think you’re going to love it.” Not to mention the fact that a bookstore is a small cultural center in a community. That’s definitely a loss.
Again, my concern is for the sake of literary diversity. If the rewards to authors go down, simple economics says there will be fewer authors. It’s not that people won’t burn with the passion to write. The number of people wanting to be novelists is probably not going to decline — but certainly the number of people who are going to be able to make a living as authors is going to dramatically decrease.
When that decreases, the diversity of the literary culture decreases. The store of new ideas and the richness of the discussion all decreases.
Further reading
Scott Turow’s letter to the Authors Guild membership
The Wall Street Journal on the Justice Department’s threat to sue Apple and five book publishers for price fixing
Congrats! You’re the best. For now. That’s the essence of an email I got back in June, when my novel “The Adults” was listed as an Amazon Best Book of 2011 … So Far. You haven’t heard of this list? Two weeks ago, I would have directed you to my Amazon page, where you’d see the gold badge on my book. It was inscribed Best Book of 2011, and then in small print, “So Far.”
It was enough of an honor for me. The shiny addition to my Web page would boost sales, regardless of what was written inside it. A gold badge plastered to a rock would help it sell, even if what was written on the badge was, “This Rock Sucks.” It draws attention to the rock, makes you at least consider its worth.
As a debut novelist, that is all I had hoped for. So I properly celebrated, meaning, I posted the news on Facebook, drank some champagne with friends, who were very enthusiastic, shouting, “That’s the coolest thing ever” and “Wow, I shop on Amazon!”
Then I called my parents. Talking to parents is always easier when drinking champagne, and drinking champagne is more fun when it’s because of your achievement. Even if that achievement is offered with a possible expiration date — December, the month that the final best books lists start to emerge. As the phone rang, I tried to savor the honor, ignored its ephemeral nature, and Harold Camping’s prediction that the world would end on Oct. 21, before the year-end lists. That didn’t seem like the worst thing in the world.
“So far?” my mother said through the phone. “What do they mean, so far?”
Yes, I explained. Amazon likes “The Adults,” but can’t commit to declaring it the best, because the year is not yet over, and surely something much better will come out, especially closer to the holidays when the big names are published.
“That’s kind of stupid,” my mother said.
My mother didn’t think it made sense to honor something and hedge your bets at the same time. And the more she pointed out the absurdity of the “So Far” on the bottom of the badge, the more it became the smudge on my contact. I put my finger over the two words, imagined what it’d look like if it were gone by December. My mother was right. A gold badge is not quite a gold badge if it’s halfhearted. Even if it’s shiny-looking, the doubt is there — especially when it’s written right within its border.
“It’s still an honor,” I said. “Just to be noticed.”
“You don’t have to be diplomatic. Not with me, sweetheart,” my mother said.
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Months passed. The world, for better or worse, did not end. December arrived. The best books lists came out, and I did not make Amazon’s final cut. My halfhearted gold badge was removed from my page. My friends came over again, and this time we drank Jameson.
“Imagine,” a friend said, “a teacher giving you a gold star on your elementary school essay. Congrats! You’re the best! And then you look closer, and you see ‘So Far’ inscribed in the middle of it. So mean.”
Another friend said, “At the very least, you are still kind of Buzz Aldrin.”
“At least you were invited to the party,” another offered. “I didn’t get sort of celebrated for anything this year.”
That was how I felt; at least I was invited to the party. That was how I always felt, in high school, if an invitation found its way to my locker. Me? Out of all these hundreds of people in our school? You want me to come and stand by your bag of potato chips and Twizzlers and tell stories about my slightly feral cat?
I always arrived too early to those parties, which might explain why I am always late now. When you are the first to show up, you stand around with the other early birds. Usually the only thing I had in common with the early birds is that we were early, and we are desperately waiting for everyone else to show up.
In the meantime, I started talking to a boy from my math class. He liked my earrings. I said, “Thanks.” We had math together. We started making fun of our math teacher. Turned out we had more in common. We both disliked our math teacher and agreed that her skirt made her look like a Fisher Price toy. Soon, we were laughing. I liked him. Who would have thought, this early into a party, already finding an interesting conversation? But he was still looking over his shoulder, waiting for the others, and so was I, even though I was pretty sure were both enjoying the conversation. Because all around us people were arriving and new conversations were forming. The room was loud with new laughter. Better laughter. Louder and fresher laughter. It had to be, because isn’t that the point of a civilization, that we advance with time, and the party gets better as the night goes on?
The cool kids were not even here yet; they showed up the latest, of course. I looked at my watch. Turned out, I wasn’t wearing a watch. But I could feel time passing, the room changing as it filled, and I suddenly wanted to go back to the time when I arrived, when it was just me and the nice boy from my math class, enjoying our small but surprising conversation. Looking over his shoulder was tiring, but I couldn’t help myself. I needed to see who was coming through the door, and figure out how they might change everything. I prayed the cool kids would get lost, that the world would end. No more cool kids, no more better books, no more lists.
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And the cool kids came, except this time in the form of Russell Banks, Haruki Murakami, Jeffrey Eugenides and others who made Amazon’s recently released Best Books of 2011 list. This would be upsetting, except who is outraged when outdone by these three giants of fiction? Who gets upset when they are cut alongside Teju Cole’s “Open City” or Arthur Phillips’ “The Tragedy of Arthur”? It was an honor to be noticed. I was grateful for those months on Amazon with a gold badge, the sales it garnered. Just like I was grateful for those minutes with the boy from my math class who surprised me with his humor, even if he did walk away shortly after to go talk to the girl with the loud laugh from my bio class.
I wouldn’t want their job anyway. It’s impossible for me to declare that something is absolutely the best, confidently, and with no conditions attached. I’m the most indecisive person I know. Well, probably. Diners terrify me with their book-length menus, married couples impress me with their lifelong contracts. I envy the people who, when online banking, chose the security questions: Who is your favorite painter? What is your favorite book? What is your favorite color? To think that this is even possible, one part of the rainbow being better than another? That someone logs onto their checking account in one year, two years, three years, and still confidently answers: Oh, Pollock. Because I can’t even make a list for various blogs that ask me to select the top 10 books of 2011. I can’t even choose one book when asked about this year’s best, and I don’t think I want to. I don’t want to pretend blue is so obviously the best anymore. My only honest response is to say, “The one I’m reading.” So far.
WASHINGTON, DC– Paul Misener, the vice president for global public policy at Amazon.com, appeared before members of Congress Wednesday to urge it to pass a proposed bill that would require online retailers — including Amazon itself — to collect state sales tax on the goods they sell through their websites.
“Congress should help address the states’ budget shortfalls without spending federal funds, by authorizing the states to require collection of the billions of revenue dollars already owed,” Misener said.
Currently, through a loophole created in 1992, online retailers that do not have physical stores in a state do not have to collect sales tax on the goods that they sell there. This sales tax loophole creates a loss of approximately $23 billion in uncollected state sales taxes every year. During tight budgetary years, state governments are now hungry to collect that money.
Whether Republican or Democratic, state governments have started duking it out with corporations such as Amazon, arguing that having a distribution warehouse in a state counts as having a “brick and mortar” presence there, thus requiring the company to pay sales tax. Recent congressional legislation, introduced by Reps. Steve Womack and Jackie Speier, known as the Marketplace Equality Act in the House, would allow states to opt into collecting sales tax from online retailers without the struggle. (A corresponding Senate bill has been introduced by Dick Durbin, Lamar Alexander and Mike Enzi.
Similar federal-level bills have been introduced in the past, but the new legislation is more flexible for states. The measure has garnered support from both Democrats and Republicans in a Congress that is usually bitterly divided on taxation issues. And Amazon, which was previously the ringleader among online retailers who uniformly opposed the previous bills, has unexpectedly decided to switch sides. Amazon now supports the federal intervention it once opposed.
The reason for Amazon’s change of heart: the company knows it is fighting a losing battle. “They reached a point where they were fighting so many states — I think they realized that it was in their best interest to finally support a national solution rather than deal with 45 states coming at them from all different directions,” said Jason Brewer, a vice president at the Retail Industry Leaders Association, a group that represents Amazon’s rivals among the big box retailers such as Best Buy and Home Depot.
To Amazon’s chagrin, Texas, New York, Illinois, Tennessee, California and other states have already passed legislation requiring online retailers to pay sales tax. These struggles have not been easy. Often it was Paul Misener himself trying to protect Amazon’s favorite loophole. When Tennessee lawmakers tried to force Amazon.com to collect sales tax, Misener threatened to punish the state by closing its warehouses, costing Tennessee jobs. He eventually brokered an agreement where Tennessee would delay action until 2012 in exchange for Amazon opening two new warehouses that would create 1,200 full-time and 2,000 seasonal jobs.
In California, when Gov. Jerry Brown signed a deal to make the company pay sales tax, Amazon threatened a ballot referendum and gathered over $5 million for signature-gathering to back it up — despite the fact that the R&D lab that created the Amazon Kindle is located in Cupertino, California. Amazon eventually conceded, and agreed to abandon the ballot initiative–in exchange for a delay in the state implementing the new law.
Patrick Byrne, chairman and CEO of Overstock.com, sparred with Misener at the hearing. “Our tax accountants have never let me try something that aggressive,” he said of Amazon’s previous insistence on not paying taxes on goods, even in states where the company has physical offices and warehouses.
Amazon and other online retailers have had good reason to try to keep the loophole open in the past. The loophole gives them an advantage over their competitors, such as WalMart and Best Buy, that have physical stores in addition to online ones. They have must pay state sales taxes on all goods, even those purchased online.
WalMart, Best Buy, Home Depot and others have clearly felt the sting of Amazon’s success and have fought back in recent years. They established the Alliance for Main Street Fairness to work “to close the anti-small business sales tax loophole,” that is, the online sales tax exemption. Through this organization, WalMart and others take advantage of a momentary alliance between giant corporations and mom-and-pop stores. As the saying goes, the enemy’s enemy is your friend — and right now everyone’s enemy is Amazon.
Amazon seems to have recognized that its attempts to bully states are no longer working. Now the company is adapting its position fast. Amazon is good at adapting. Started as an online bookseller, Amazon has grown with the Internet, now selling everything from lawnmowers to wedding rings. When book sales plummeted, Amazon produced the Kindle, a low-price tablet where buyers can purchase digital books from Amazon with a single click. As the online marketplace grew massive, Amazon created its successful Prime service, which gives customers free shipping, for an annual $79 fee. Amazon actually loses $11 per customer annually on Prime, but it creates valuable consumer loyalty in the process.
Amazon displayed similar craftiness in front of Congress yesterday. Rather than continuing to fight a losing battle over sales tax in the states, Amazon flipped its position, and now the company will avoid fighting state-by-state battles that it would have lost eventually.
And in defeat, Amazon is already looking for ways to win. In early November, the company announced that it will roll out a new service early next year that will collect sales tax on behalf of its Amazon Marketplace vendors, the hundreds of thousands of businesses that sell their goods through Amazon.com. Amazon plans on collecting a 2.9 percent surcharge for acting as the sales tax calculator and collector, a fee that will presumably either get passed on to the vendor or the consumer.Rather than being hit by new sales tax regulations, the company is now using the regulations to profit.
Amazon remains a bully, and a very agile one at that.
(Credit: iStockphoto/stokato) 
(Credit: AP/Ben Margot) 
(Credit: iStockphoto/PaulaConnelly/mbortolino) 
(Credit: valdis torms via Shutterstock/Salon) 
Jeff Bezos of Amazon.com (Credit: Reuters/Kim White) 
