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Cengage Learning and McGraw-Hill : CMA Ultimatum Comes Same Day U.S. reps urge DOJ scrutiny

On March 10th, the U.K. Competition and Markets Authority (CMA) gave Cengage Learning and McGraw-Hill an ultimatum: address competition concerns or face a Phase II review.

After finishing its Phase I investigation, the CMA concluded the proposed merger “gives rise to a realistic prospect of a [substantial lessening of competition] as a result of horizontal unilateral effects in relation to the supply of [higher education] titles for 51 [higher education] courses in the U.K.” The CMA believes the loss of competition could lead to higher prices for students. The parties are required to address these concerns soon or face a Phase II review.

The CMA focused its review at the college course level, identifying 379 courses in which the companies compete. Of those, 51 courses had potentially problematic overlap. The companies would have a market share greater than 40% in 42 of those courses and between 30% and 40% in the other nine.

The merging parties argued that students had several choices in these courses. But the CMA determined “these alternatives did not represent important enough constraints on educational publishers to offset the CMA’s concerns about the loss of competition arising from the merger.” The CMA also determined that entry or expansion was unlikely and, even if it did occur, would not be sufficient or timely.

The CMA notably found the merger would not foreclose competition in the market for multi-title digital subscription services (i.e., inclusive access fees). The CMA based this conclusion on a lack of evidence that the parties would launch this type of service in the U.K. and that professors were unlikely to restrict course materials to a single company’s titles in response to inclusive access fees.

Letter From U.S. Lawmakers

On the same day the CMA released its findings, U.S. Representatives David N. Cicilline of Rhode Island and Jan Schakowsky of Illinois sent a letter urging the DOJ to closely scrutinize the merger due to its potential effects on textbook prices and students’ learning data. The lawmakers believed the merger could create a duopoly in the college textbook publishing market, which “will likely drive up costs for students and families who are already facing financial barriers to achieving higher education.”

Unlike the CMA, the representatives believe the merger would facilitate the shift to an inclusive access fee model, which “will completely remove students’ ability to price-shop and will prevent students from reselling textbooks, destroying the cost-lowering effect of the secondary textbook market.” The lawmakers also took issue with the merger’s potential impact on the market for students’ learning data, noting that the merger “threatens to create significant market power over higher-education data, putting students’ privacy at greater risk.” They believed the post-merger entity could collect enough data to give it an insurmountable advantage in this market.

DOJ Should Listen to the Congressmen

The DOJ should take its cues on how to analyze the merger from Reps. Cicilline and Schakowsky rather than the CMA. The CMA’s decision to scrutinize the competitive effects of the merger on a course-by-course basis makes sense given that the U.K. lacks a developed inclusive access fee market. Without this market, the number of titles possessed by the post-merger entity is less significant and forcing divestment of overlapping titles can cure many of the competition problems caused by the merger in the U.K.

On the other hand, the U.S. has a developed market for inclusive access fees. In fact, both Cengage and McGraw-Hill have launched inclusive access deals with many U.S. colleges and indicated the merger will allow them to more effectively pivot to this model going forward.

As discussed previously, there are only three U.S. companies with large enough title catalogs to compete in this market – the two merging parties and Pearson. By reducing the number of competitors from three to two, the merger will substantially lessen competition in this market and likely lead to higher prices and/or lower quality education materials for students forced to participate in it.

As highlighted by Reps. Cicilline and Schakowsky, the merger may also limit competition in the emerging market for student learning data. For these reasons, unlike the CMA, the DOJ should incorporate the merger’s impact on the inclusive access fee and student learning data markets when analyzing the competition problems raised by the merger.

Postscript: A Few Words about Student Privacy

The elimination of a robust secondhand textbook market in favor of digital platforms controlled by a few dominant players is certainly concerning from both an antitrust and privacy perspective. In addition to the usual concerns when a few players control a digital platform — such as degradation in competitive pricing, privacy, and overall quality — privacy regimes specific to children and students must be considered as well. For example, the Family Educational Rights and Privacy act governs public schools’ treatment of confidential student records, and in the primary and secondary school markets the Children’s Online Privacy Protection Act imposes requirements for operators of online services directed to children under 13 years of age.

© MoginRubin LLPNational Law Review, Volume X, Number 83

TRENDING LEGAL ANALYSIS


About this Author

Timothy Z. LaComb Antitrust Lawyer Mogin Rubin Law Firm
Associate

Mr. LaComb is an Associate in MoginRubin LLP’s San Diego office and his practice focuses on antitrust, unfair competition, and complex business litigation, particularly as they relate to mergers and acquisitions. Prior to joining MoginRubin LLP, Mr. LaComb was an Associate at Robbins Geller Rudman & Dowd LLP where he helped secure several multi-million-dollar recoveries for shareholders in merger-related class action litigation.  Through his extensive experience in complex litigation, he has developed an expertise and proficiency in electronic and other discovery-related issues...

619-687-6611
Jennifer Oliver Antitrust Attorney Morgin Rubin LLP
Partner

Ms. Oliver joined MoginRubin LLP in 2017 after nearly ten years practicing as a complex business litigator in the New York office of Weil, Gotshal & Manges LLP. Jennifer’s practice is focused on antitrust, as well as complex business and investment litigation. Her previous clients include General Electric, Lehman Brothers, Bridgestone, Washington Mutual, The Walt Disney Company, ESPN, The Dow Chemical Company, General Motors, The Port Authority of New York and New Jersey, Forbes, and American Airlines. Jennifer’s experience includes active roles in several high-profile jury trials, serving as lead counsel in complex mediations, and arguing before courts at both the trial and appellate levels. In addition to her merger and cartel work, Jennifer has also litigated trade secrets, RICO conspiracies, securities fraud, unfair trade practices, breaches of contract and privacy cases. A strong advocate for pro bono work, Jennifer was a member of the pro bono team in the seminal Supreme Court case Ashcroft v. Iqbal.

Jennifer earned her B.S. (Business Administration), M.B.A., and J.D. degrees from the University at Buffalo, each with honors, where she also served as the Vice President of the undergraduate student body and was an editor of the Buffalo Law Review and Buffalo Intellectual Property Law Journal. Jennifer is admitted to practice law in the Southern District of New York, Eastern District of New York, Northern District of California, Central District of California, and Southern District of California, and is an IAPP Certified Information Privacy Professional. She has also lived and worked in Tokyo, where she studied international law and worked as a clerk at one of Japan’s largest law firms. Jennifer was recently awarded with the 2018 International Advisory Experts Award for Complex Business Litigation in California.

Jennifer has been an active volunteer with the Junior League since 2015, where she helps spearhead initiatives to improve the lives of transition age foster youth in San Diego.

619.687.6611