Public Comments and Response on Proposed Final Judgment, United States v. Pearson plc, Pearson Inc. and Viacom International Inc.

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 1:98CV02836]

Public Comments and Response on Proposed Final Judgment, United

States v. Pearson plc, Pearson Inc. and Viacom International Inc.

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

16(b)-(h), the United States of America hereby publishes below the

comments received on the proposed Final Judgment in United States v.

Pearson, plc, Pearson Inc. and Viacom International Inc., Civil Action

No. 1:98CV02836, filed in the United States District Court for the

District of Columbia, together with the United States' response to the

comments.

Copies of the comments and response are available for inspection in

Room 215 of the U.S. Department of Justice, Antitrust Division, 325 7th

Street, NW, Washington, DC 20530, telephone: (202) 514-2481, and at the

Office of the Clerk of the United States District Court for the

District of Columbia, United States Courthouse, Third Street and

Constitution Avenue, NW, Washington, DC 20001. Copies of any of these

materials may be obtained upon request and payment of a copying fee.

Constance K. Robinson,

Director of Operations, Antitrust Division.

Civil Action No. 1:98CV02836

Judge: James Robertson

Filed: April 22, 1999

PLAINTIFF'S RESPONSE TO PUBLIC COMMENTS

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act, 15 U.S.C. 16(b)-(h) (1997) (``Tunney Act'') the United

States hereby responds to the four public comments received regarding

the proposed Final judgment in this case.

I. Background

On November 23, 1998, the United States filed the Complaint in this

matter alleging that the acquisition by Pearson plc and its wholly

owned subsidiary, Pearson Inc. (collectively ``Pearson'') of certain

publishing businesses of Viacom International Inc. (``Viacom'') would

violate Section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint

alleges that Pearson and Viacom, two of the nation's largest publishers

of textbooks and other educational materials, compete head-to-head in

the development, marketing and sale of comprehensive elementary school

science programs and in the development, marketing and sale of

textbooks used in thirty-two college

[[Page 24174]]

courses. The Complaint also alleges that the defendants are two of only

a few firms that compete in these markets and that they account for a

significant share of all sales. Pearson's acquisition of Viacom's

publishing businesses was therefore likely to reduce competition and to

result in higher prices for these comprehensive science programs and

for college textbooks and other educational materials in these courses.

Simultaneous with the filing of the Complaint, the United States

filed a Final Judgment and Stipulation signed by all the parties

allowing for entry of the Final Judgment following compliance with the

Tunney Act. A Competitive Impact Statement (``CIS'') was also filed

with the Court and published in the Federal Register, along with the

proposed Final Judgment, on December 21, 1998 (see 63 FR 70,422).

The proposed Final Judgment permits Pearson to acquire the

publishing businesses from Viacom, which it did on November 27, 1998,

but requires Pearson to divest itself of one of its two elementary

school science textbook programs and fifty-five college textbooks

serving thirty-two college course markets. On December 23, 1998,

Pearson sold Viacom's elementary science program to Houghton Mifflin

Company.

The sixty-day period for public comments expired on February 19,

1999. The United States has received four comments, copies of which are

attached, from the following individuals: (1) Professor Gary Musser;

(2) Professor Frederic Martini; (3) Mr. Clayton Jones; and (4)

Professors Vogeli, Ginsburg and Greene. The United States has carefully

considered the views expressed in these comments, but nothing in these

comments has altered the United States' conclusion that the proposed

Final Judgment is in the public interest. Once those comments and this

Response are published in the Federal Register, the United States will

have fully complied with the Tunney Act and will then file a motion for

entry of the proposed Final Judgment.

II. Response to Public Comments

Two of the comments received by the United States were from college

textbook authors who raised concerns about the divestitures required by

the decree. Dr. Gary L. Musser, the co-author of a Prentice Hall

textbook to be divested, wrote that he is concerned that the

divestiture will have a disruptive and harmful effect on the sales of

that book as well as on another of his textbooks that is not to be

divested. Both books are in the process of revision and Dr. Musser

believes that they benefit from being marketed together. He believes

that current plans for revisions, plans to supplement his to-be-

divested book with a CD/Web package, and the schedules for

republication will be jeopardized if his book is sold to another

publisher at this time. He urges the United States and the Court to

consider revising the decree so as not to require divestiture of his

book.

Dr. Frederic Martini, the author of five textbooks published by

Prentice Hall, none of which is required to be divested under the

Proposed Judgment, also raised concerns about the proposed

divestitures. Dr. Martini believes that the acquisition is likely to

have anticompetitive effects in numerous publishing markets, and

believes that the divestitures will not go far enough to preserve

competition and innovation and will negatively impact authors and the

marketing, sale, and development of their textbooks. Specifically, Dr.

Martini contends that competition among publishers--and, in particular

between Pearson and Viacom--has resulted in product innovation and the

development of ``hi-tech'' electronic educational materials that

supplement college textbooks. He is concerned that the acquisition will

lessen this product innovation and development because the competition

between the Pearson and Viacom titles will be lost; he is also

concerned that the acquisition will raise barriers to entry by small

publishers and reduce opportunities for new textbook authors and new

texts.\1\

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\1\ Dr. Martini states that, for anatomy and physiology--one of

the college textbook courses for which divestiture of texts is

required--Pearson will account for fifty to sixty percent of all

textbook sales after acquisition. Based on our investigation, which

included review of sales data collected by an industry reporting

service, we believe that, after the proposed divestiture Pearson

makes, its share of this market will be no more than it was prior to

its acquisition of Viacom's titles--somewhat less than fifty

percent.

---------------------------------------------------------------------------

Dr. Martini recommends revising the decree so that Pearson may

retain all of the Viacom titles but must hold them separate from the

rest of their operations., He would specifically prohibit the ``merging

of lists and the coalescing of related divisions, such as acquisitions,

editorial, marketing, sales, and technology support for the imprint

titles.'' He hopes that that would allow the two companies to

``maintain their distinctive character'' and continue to develop

competitive technologies. He concedes, however, that this might limit

Pearson's ability to maximize economies of scale.

The United States believes that the divestiture of all the

designated titles is essential to preserve competition in the markets

alleged in the Complaint. The goal of the Final Judgment is to replace

the competition eliminated as a result of the acquisition with one or

more new viable competitors that will be capable of being in the market

over the long term. To accomplish that, the proposed Final Judgment

contains numerous requirements to ensure that the acquirer or acquirers

of these programs and textbook titles continue as viable and effective

competitors. These include provisions requiring that the acquirer have

the opportunity to employ certain personnel, and provisions requiring

divestiture of all tangible and intangible assets that make up each of

the products. The United States must also be satisfied that the

acquiring parties have the ability and intention to publish and market

the divested products as viable, ongoing businesses.

Although the United States recognizes that divestiture of these

college textbooks may have some short-term effect on their development

and marketing, the proposed decree includes provisions designed to

minimize any disruption. First, the proposed Judgment requires prompt

divestitures (within the later of five months after filing of the

Judgment with the Court or ten days after the expiration of the 60-day

comment period) to minimize the period of uncertainty and discontinuity

of ownership of the divested titles. In addition,until divestiture is

completed, the proposed Judgment requires the defendants to take steps

to preserve the viability and competitiveness of those title; these

include requirements to maintain funding, development, promotional

advertising, marketing, editorial and merchandising support, and to

maintain and increase sales. Moreover, the United States believes that,

absent divestiture of the titles to a new publisher, the authors of

these textbooks would face a far greater risk in the longer term that

their texts and ancillary materials will not be developed, promoted and

revised as effectively as they otherwise would have been because their

new owner now also markets a good number of their most important

competitors.

Dr. Martini's proposal that Pearson be allowed to retain all of the

Viacom titles but more or less permanently be required to operate

various divisions separately and be prevented from merging titles and

imprints will not best preserve competition in the affected college

textbook markets. Divisions owned, managed by and answerable to a

single owner will not maximize competition with each other. A hold-

separate agreement will not alter Pearson's financial incentive and

ability to allocate funding and other resources

[[Page 24175]]

among the various textbooks (or textbook divisions) that it will own in

a way to maximize company profits. It also likely would not alter

Pearson's incentive and ability to raise prices on titles, or reduce

provision of supplemental products and services, in those markets where

it accounted for a large share of sales. Such a permanent hold-separate

order would also be difficult to administer and likely impossible to

enforce. The Court would be hard-pressed to determine whether Pearson

was promoting certain titles as fully and effectively as it would

absent ownership of the other competing titles. Finally, as Dr. Martini

concedes, such an arrangement might limit Pearson's opportunities to

maximize economies of scale and thus raise its costs, which could

result in higher prices to consumers. For these reasons, courts have

long and consistently recognized that maintenance of completely

independent, separately owned competing entities is the effective

remedy for mergers or acquisitions that violate the antitrust laws.

In another comment received by the United States, Clayton E. Jones,

Chief Executive Officer of Jones and Bartlett, an educational

publisher, raised concerns that the decree will not achieve its

intended results because another large competitor is likely to purchase

the divested products. He states that it is necessary to ``take [the]

decree one step further and allow some of the smaller players in the

industry an opportunity to purchase these products'' so that the decree

will achieve its objective of enhancing competition in the industry.

The proposed Final Judgment is designed to ensure that the

purchaser or purchasers of the divested products will be viable and

effective competitors and does not exclude--or give preference to--any

kind of publisher from consideration as a purchaser. A small publisher

is certainly eligible to purchase the divested products so long as the

United States is satisfied that it has the ability and intention to

publish and market the divested products as viable, ongoing businesses.

Moreover, the United States will not approve a proposed divestiture to

a publisher that is already a substantial competitor of the program or

title that it seeks to acquire. Thus, Mr. Jones need not be concerned

that there will be a divestiture to a large competitor that will not

preserve competition in the affected markets.

Finally, the United States received a comment from three college

professors, Drs. Bruce R. Vogeli, Herbert Ginsburg of Columbia

University and Carole Greenes of Boston University, who stated that,

although they concurred with the proposed divestitures relating to

elementary school science programs, the United States should have also

concluded that the acquisition lessened competition in elementary

school mathematics programs and sought a divestiture of one of these

programs as well. They place particular emphasis on the value that they

believe competition has had in the development of innovative

mathematics textbooks and point to increased concentration among

publishers in this area. They urge the Court to ``require the plaintiff

to revisit the proposed final settlement to show cause why relief

similar to that provided for elementary school science not be required

for elementary school mathematics as well.''

The United States conducted a thorough investigation of the likely

impact of Pearson's proposed acquisition of the Viacom publishing

businesses on numerous possible markets, including the market for the

development, marketing and sale of elementary school mathematics

textbooks. The investigation included the review of thousands of

documents, and information from numerous industry sources, including

teachers, school administrators, authors, professors and publishers.

Based on that investigation, the United States concluded that the

acquisition would lessen competition in violation of Section 7 of the

Clayton Act with respect to elementary school science programs, and the

thirty-two college textbook markets alleged in the Complaint.

In essence, the authors of this comment ask the Court to require

the United States to amend its Complaint to allege an additional

violation of Section 7 of the Clayton Act and to seek additional

relief, or, at least, to inquire into the government's investigation

and require it to explain and justify its analysis and conclusions.

Such judicial review of the government's determination of which conduct

to challenge or which violations to allege in the Complaint is not

contemplated by the Tunney Act. The government's decision not to

challenge particular conduct based on the facts and law before it at a

particular time, like any other decision not to prosecute, ``involves a

complicated balancing of a number of factors which are peculiarly

within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821,

831 (1985). As the United States Court of Appeals for the District of

Columbia recently held, it is not the role of the Court in a Tunney Act

proceeding to go beyond the Complaint ``to evaluate claims that the

government did not make and to inquire as to why they were not made.''

United States v. Microsoft Corp., 56 F.3d 1448, 1459 (D.C. Cir. 1995).

Last year, the United States Court of Appeals for the District of

Columbia stated that courts, in making their public interest

determination:

must examine the decree in light of the violations charged in the

complaint and should withhold approval only if any of the terms

appear ambiguous, if the enforcement mechanism is inadequate, if

third parties will be positively injured, or if the decree otherwise

makes ``a mockery of judicial power.''

Massachusetts Sch. of Law at Andover, Inc. v. United States, 118 F.3d

776, 783 (D.C. Cir. 1997), quoting United States v. Microsoft Corp., 56

F.3d 1448, 1462 (D.C. Cir. 1995).

III. Conclusion

After careful consideration of these public comments, the United

States has concluded that entry of the proposed Final Judgment will

provide an effective and appropriate remedy for the antitrust

violations alleged in the Complaint, and is therefore in the public

interest. When those comments and this response are published in the

Federal Register, the United States will move the Court to enter the

proposed Final Judgment.

Dated: April 22, 1999.

Respectfully submitted,

John W. Poole (DC Bar #56944)

Joyce L. Bartoo (DC Bar #359264)

David C. Kully (DC Bar #448763)

Ahmed E. Taha,

Attorneys for the United States, Antitrust Division, U.S. Department of

Justice, 325 Seventh Street, NW., Suite 300, Washington, DC 20530,

(202) 616-5943.

Attachment 1

To: Ms. M. J. Moltenbrey,

Chief Civil Taskforce, Anti-Trust Division, United States Department

of Justice

Re: Forced sale of my book from Prentice-Hall

I am a co-author of two books currently published by Prentice-

Hall--Mathematics for Elementary Teachers and Mathematics in Life,

Society, and the World. A couple of months ago, I was notified by

Prentice-Hall that the first book had to be sold to allow the

purchase of Simon-Schuster by Pearson. I asked if I had any rights

and was told that this was a ruling of the Department of Justice--

that was it! I just found out that I do, in fact, have a chance to

comment--perhaps to object and obtain a reversal in the ruling.

I understanding that there are anti-trust considerations in this

case. However, there are also human and artistic considerations that

you can consider. Let me share these with you.

1. We are currently in the revision process for both of my

books. Prentice-Hall is

[[Page 24176]]

committed to publishing BOTH books and the books are scheduled for

July/August publication dates so our adopters can have the most up-

to-date books for their students this fall. Forcing the sale of

either of these books will jeopardize this schedule. Forcing the

sale of these books as a package may work to our disadvantage since

there is no guarantee that both books will be published by another

publisher.

2. Although my books have separate markets, there is overlap in

the material and instructors who use one of my books are likely to

want to use the other. When marketing, Prentice-Hall is motivated to

make this connection. If my books are split, I and my co-authors

will suffer because this connection will be less obvious.

3. Prentice-Hall is planning to add a CD/Web package to my

Mathematics for Elementary Teachers book. This will be a creative

addition to the marketplace. However, there is no guarantee another

publisher will pick up these extras. In this case, instructors and

their students are the ones who will be disadvantaged.

4. Prentice-Hall and Addison-Wesley both have other competing

books for elementary teachers that they can sell without causing a

disruption as described in items 1 through 3 above.

By allowing my two books to stay with Prentice-Hall, authors,

instructors, and students benefit. I hope that you, the Department

of Justice, and the court can review the uniqueness of this

situation and will work to provide some justice for individuals in

this case.

Sincerely,

Gary L. Musser

Attachment 2

February 6, 1999.

To: M.J. Moltenbrey,

Chief, Civil Task Force, 325 Seventh Street, Suite 300, Washington,

D.C. 20530.

Cc: John Poole

Joel J. Klein

Sen. Daniel Akaka

Rep. Patsy Mink

I am a textbook author whose texts are published by Prentice

Hall. My first book contract was signed in 1981, and I have been

writing either part time or full-time since then. I am a member of

the Authors Guild, the National Writers Union, and the Text and

Academic Authors Association. As college faculty, I am also a member

of the National Association of Biology Teachers, the Society for

College Science Teachers, the American Physiological Society, and

the Human Anatomy and Physiology Society. I am therefore well

acquainted with both the process of textbook authoring and

publishing and the dynamics of our educational system from a faculty

member's perspective. I am writing to express my concerns about the

Final Judgement issued by the Department of Justice permitting the

merger of Pearson Inc. and the educational publishing units of

Viacom. During the evaluation period I provided information to Mr.

Poole and his associates at the DoJ, and I feel that the Judgement

does not adequately address several of the problematic aspects of

this merger.

The Final Judgement as stipulated will not in fact preserve

competition and innovation in the market. Innovation in the textbook

today is occurring most rapidly in the hi-tech electronic areas.

Examples include companion web-sites, course management software,

distance learning systems, computer-based testing programs,

interactive tutorials and simulations, and presentational systems

and software. With very few exceptions, all of these products are

given away free when the corresponding textbook is adopted. The

development, upgrading, and maintenance of these products, which is

very expensive, thus represents a continual drain on corporate

profits. These expenditures can only be justified on the grounds

that they will increase the market share of the associated textbook.

In a market with many competitors, the associated costs are high

enough that each publisher tends to have specialties. Thus with 6

competing publishers, each with viable texts, each would have a full

range of supplements, but each would spend extra money on developing

one particularly innovative product or approach different from (or

better than) what was offered by the competition. These innovations

would of course be focal points for sales and marketing

presentations. Meanwhile, each company would be continually looking

for cost-effectives ways to match or better the strengths of the

competition.

When competitors A and B merge, the new company pools resources

within their disciplines. Let me give you a specific example from

the discipline where I publish (anatomy and physiology). Prentice

Hall had what was generally recognized as the best web-site

technology and the most innovative lecture presentation software

available with their texts. Addison-Wesley/Longman had great

physiology simulations available with their A&P texts. PH was

actively working on physiology simulations that would be competitive

(and out-do) the AWL offerings, while AWL was trying to improve

their web-sites and their presentational software. But now under

Pearson the web-site, presentational software, and simulation

programs will be shared. This has three noteworthy effects on

competitiveness:

1. Prentice Hall can abandon its efforts to develop unique

simulations, and AWL can stop worrying about building a better web-

site or developing new presentational software.

2. The combined companies are able to offer a great web-site,

good presentational software, and great simulations with any of

their texts. It therefore becomes even more difficult for other

publishers to compete in this market. The stakes have now been

raised--a publisher must face the combined threat of both the web-

site, presentational software, and simulations, whereas before it

need only compete with individual offerings. The costs are so high

that small publishers are priced out of the market, and over time

many large publishers have been forced to cut lists to devote money

and personnel to supporting an ever-smaller number of texts. The

Department of Justice could of course say that this sort of thing is

a benefit to consumers, since an instructor can order a good text

and get a great web-site, good presentational software, and terrific

simulations. But that is precisely the argument that Microsoft is

using to oppose the DoJ's antitrust suit. If the DoJ feels that it

is wrong to give that kind of market power to a software company,

why permit it in the textbook market?

3. The authors of the individual texts published by either

company lose their distinctiveness and their marketing momentum.

This drastically reduces competition between PH and AWL titles. It

doesn't matter to Pearson whether a particular sale is credited to

PH or AWL, as long as the sale stays ``in the family.'' But it

matters a great deal to the individual authors involved. I find it

infuriating that projects that I have worked on for years--including

the related software and web-sites--should be turned over to my

competition. My texts were often the ``test cases'' for developing

these products. Once the bugs were ironed out, the product was used

as a template that could benefit other PH texts. All of the time and

effort that I expended in evaluating and enhancing these products is

essentially lost when they are handed to AWL. Furthermore, I worked

with the programmers for over a year developing a CD-ROM interactive

version of my text. Now that shell will also be handed over to my

competition. In essence, my ability to continue to be innovative and

to increase the market share of my texts has been severely

compromised. Further, my interest in ``pushing the envelope'' of

technology is greatly diminished since whatever I do will be

immediately gifted to a major competitor.

Even after the divestiture (see comments below) PH and AWL will

control 50-60% of the A&P market; my text accounts for about 25%.

Prior to the merger I was competing aggressively for 75% of the

market, and gaining market share rapidly against AWL. Now Pearson

will compete for 40-50% of the market, with minimal (or managed)

competition between my text and AWL titles. This is certainly not a

demonstration of ``increased competitiveness.''

Concerning the divestiture of titles. I do not believe that

eliminating the books specified will materially affect the scoper or

competitive force of the combined companies. The DoJ has identified

55 titles with annual gross revenues of roughly $35 million from a

combined list of approximately 3500 titles and annual gross revenues

of $2.4 billion. The titles per se are much less important than the

leverage that the combined corporation can bring to bear, and this

applies even to markets that they do not dominate at present.

However, the divestiture will have a serious negative impact on the

authors involved. The books will be in turmoil for the next edition

cycle at least--handing a textbook to another publisher is not like

giving another retailer a toaster. The books are transferred without

many of the factors that made them successful. Obvious examples of

important factors are the editorial teams, marketing specialists,

and sales representatives familiar with the product, but less

obvious and equally important factors include the programming teams

that developed the

[[Page 24177]]

supplements packages, web-sites. CD-ROMs, and so forth. Without

exception the titles transferred to another publisher will lose

market share; this is not due to any fault of Pearson's, it is just

a fact of life. A publisher entering these new markets will have no

track record with the faculty, and relationship sales are important

in this industry. Further, their sales reps will be uncertain as to

key features and competitive issues. Of course, by default most of

the market share lost by these titles will be captured by Pearson,

and this circumvents the stated goal of the divestiture.

As faculty members, textbook authors are the only people with

direct experience in all areas affected by this merger--textbook

writing production, marketing, and sales, as well as market

dynamics, faculty concerns, and the educational system in general.

It is therefore disconcerting that the issues raised by the Authors

Guild, the Text and Academic Authors Association, and the National

Writers Union--all of whom strongly opposed this merger--have been

largely ignored. The combination of these companies will further

reduce the opportunities for new authors, new texts, and new

publishers. Small publishers are already unable to compete in

markets where the cost of entry is so very high. Ten years ago an

aspiring author in the biological sciences could approach 8 major

publishers with a manuscript idea. Now that author could approach 2

or 3 (depending on the topic), and the odds are that each already

has one or more titles in that market. Along with the decrease in

opportunity comes a reduction in leverage and bargaining power. It

has become increasingly difficult to negotiate favorable contract

terms--after all, where else are you going to go?

For all of the above reasons I would like to see the Department

of Justice review and revise its Judgement regarding this merger. It

is probably logistically impossible to reverse the decision, as the

companies are well into their integration phase. However, I would

suggest that you consider adding provisions that would permit the

amalgamation of ``backroom'' operations, such as inventory,

accounting, purchasing, etc., but require the continued maintenance

of separate imprints and competition in the market. This would

involve specifically prohibiting the merging of lists and the

coalescing of related divisions, such as acquisitions, editorial,

marketing, sales, and technology support for the imprint titles.

This would not be particularly popular with Pearson, as it would

limit their ability to maximize economies of scale, but it would be

in keeping with Pearson's assurances to the FTC prior to merger

approval, which indicated that the companies would remain separate

and competing. It is worth noting that the consolidation process is

already well underway. Technology transfers have begun as noted

above, and reorganization of the sales staff and extensive merging

of book lists have been scheduled for the first half of 1999.

If the DoJ's goals are the maintenance of competition and

innovation, PH and AWL texts must compete with one another as well

as with texts published by other companies. The two companies must

therefore maintain their distinctive character, and they should

continue to develop competitive technologies for web-sites,

presentations, and simulations. If that were stipulated, I am not at

all convinced that a divestiture list is needed, and the authors

involved could be spared a lot of personal and financial distress.

If you have any questions, please feel free to contact me. With

best wishes, I remain.

Sincerely,

Frederic Martini,

[email protected]

Attachment 3

December 28, 1998.

Ms. M.J. Moltenbrey,

Chief, Civil Task Force, U.S. Department of Justice, 325 Seventh

Street, suite 300, Washington, DC 20530.

Via Fax #202-514-7300

Re: Pearson's purchase of Viacom Publishing Businesses

Dear Ms. Moltenbrey: I am writing to voice strong opposition to

the proposed settlement decree dated 11/23/98.

As one of the few remaining small players in the educational

publishing world, we applaud the intent of the decree, but we have

serious concerns that the decree will not achieve the intended

results. It is likely that the divested products will ultimately

land in the hands of one of the other giants in our industry and

thus the impact of your decree will be negligible.

Your press release quotes Joel I. Klein, Assistant Attorney

General of the Department of Justice Antitrust Division, ``Education

is an important national priority, and competition is essential to

ensure that our students have the best available educational

materials.'' If you truly believe this statement, then you must take

your decree one step further and allow some of the smaller players

in the industry an opportunity to purchase these products. Simply

allowing Pearson to sell these textbooks for an estimated $40

million to one of their next largest competitors is a serious waste

of everyone's time and will not fulfill your stated objective of

enhancing competition in the industry.

I would welcome an opportunity to discuss this matter with you

in greater detail. Thank you for your consideration.

Sincerely,

Clayton E. Jones,

Chief Executive Officer.

Attachment 4

January 19, 1999.

Mary Jean Moltenbrey,

Chief, Civil Task Force, Antitrust Division, United States

Department of Justice, 325 Seventh Street, N.W., Suite 300,

Washington, DC 20530.

Dear Ms. Moltenbrey, Pursuant to the matter now before the

United States District Court for the District of Columbia No. 1: 98-

CV-02836 (Antitrust), we are writing to comment upon the proposed

``Final Judgment'' as indicated in Section V, PROCEDURES AVAILABLE

FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT of the COMPETITIVE

IMPACT STATEMENT filed in the District Court by the plaintiff's

attorney, John W. Poole (Senior Trial Attorney, U.S. Department of

Justice). While we concur with the consent decree's resolution of

the deleterious effects upon the elementary school science textbook

market of the proposed acquisition of certain Viacom International,

Inc. publishing businesses by Pearson, Inc., the decree does not

address similar and potentially more damaging effects upon

elementary school mathematics in the United States.

As the court document states ``absent a showing of corrupt

failure of government to discharge its duty'' the court can at most

determine'' ``whether the settlement is within the reaches of the

public interest''. It is our contention that, insofar as the

mathematical education of American children is in the public

interest, the absence of a competitive impact statement regarding

the elementary school mathematics textbook market renders the

proposed settlement not ``within the reaches of public interest''.

The importance of this oversight is especially critical due to the

fact that the national mathematics market is three times as large as

that of science.

A competitive impact statement for the elementary school

mathematics textbook market would be remarkably symmetric to that

provided to the Court for elementary school science (Section B-1-a,

b). The following is an example of what the Justice Department

should have stipulated:

Basal Elementary School Mathematics Program Market

A. Description of the Market

Most elementary schools throughout the United States teach

mathematics through comprehensive mathematics programs known as

``basal elementary school mathematics programs'', which provide

organization and structure as well as guidance and support in how to

teach the subject. Student textbooks and teacher's editions of the

textbooks are the core of most basal programs, but most also include

other important educational materials and services called

``ancillary'' materials consisting of student workbooks and

notebooks, audio-visual aids such as charts and videotapes, and

materials for mathematics exercises and activities. Basal elementary

mathematics programs also often include services such as teacher

training sessions.

School districts or individual schools desiring to purchase

basal elementary school mathematics programs would not turn to any

alternative product in sufficient numbers to defeat a small but

significant increase in the price of these programs or a reduction

in the value of ancillary materials and services provided with them.

For example, schools would not substitute any of the few

nontraditional, alternative mathematics programs in sufficient

numbers to defeat a small but significant price increase in basal

elementary school mathematics programs.

B. Harm to Competition as a Consequence of the Merger

Pearson and Viacom are two of only five large publishers of

basis elementary mathematics programs. They consistently have led

the market, capturing a combined

[[Page 24178]]

share of over fifty percent of new sales over the last six years.

Pearson's program is a close copy of Viacom's program but, at

present, has a significantly smaller market share. Pearson and

Viacom also compete to maintain and improve programs that were

intended to be offered to sale throughout the United States

beginning in 1999.

Pearson and Viacom's aggressive competition has led to lower

prices, more and better ancillary materials and services, and

improvement of product quality. The proposed acquisition would

eliminate this competition and would further concentrate an already

highly concentrated market.

Successful entry into the basal elementary school mathematics

program market is difficult, time consuming, and costly. A publisher

would need to assemble editorial, sales and training staffs to

develop, test, market and provide ongoing support for the new

program and would need to overcome schools' reluctance to purchase

an elementary school mathematics program from firms lacking an

established reputation as a experienced and reliable mathematics

publisher. This complaint alleges that the transaction would likely

have the following effects:

a. actual and future competition between Pearson and Viacom in

the elementary school mathematics textbook market would be

eliminated;

b. competition generally in the market for basal elementary

school mathematics programs would be substantially lessened since it

is likely that Pearson would not continue the development of new

products already in progress at Silver Burdett Ginn;

c. prices for basal elementary school mathematics programs would

likely increase or the ancillary materials and services would likely

decline; and

d. competition in the development and improvement of basal

elementary school programs would likely be substantially lessened as

a result of the consolidation of Addison Wesley, Scott Foresman and

Silver Burdett Ginn--all acquired or to be acquired by Pearson.

Item (d) above addresses the ``development and improvement of

basic elementary school mathematics programs'' and is of special

significance. Prior to Pearson's acquisition and merger of Scott

Foresman and Addison Wesley Longmans, both of these distinguished

publishing houses competed actively and independently with Silver

Burdett Ginn and three other large firms in developing innovative

mathematics textbooks for American elementary schools. As a result

of Pearson's merger of Scott Foresman and Addison Wesley Longmans,

six major innovators were reduced immediately to five. If the

Pearson acquisition of Viacom Inc's Silver Burdett Ginn division is

permitted to proceed without restriction, the original six

innovators will have been reduced to four in less than four years--a

33% market contraction! Together the three independent houses that

will have been merged under the Pearson, Inc. label have held

elementary school children and teachers--to permit Pearson, Inc. to

eliminate the most viable competition in the elementary school

textbook market through acquisition and suppression?

We respectfully urge that the District Court require the

plaintiff to revisit the proposed final settlement to show cause why

relief similar to that provided for elementary school science not be

required for elementary school mathematics as well.

Respectfully submitted:

Bruce R. Vogeli,

Clifford Brewster Upton Professor, Program in Mathematics.

Herbert Ginsburg,

Jacob Schiff Professor, Program in Psychology.

Carole Greenes,

Professor of Mathematics and Associate Dean, Boston University.

Certificate of Service

This certifies that on April 22, 1999, I caused copies of the

foregoing Response to Public Comments to be served as indicated upon

the parties to this action and courtesy copies to be served as

indicated upon each commenter:

By hand:

Robert S. Schlossberg, Esquire, Morgan, Lewis & Bockius, 1800 M Street,

NW, Washington, DC 20036-5689, Counsel for Pearson plc and Pearson,

Inc.

By first class certified mail:

Wayne D. Collins, Equire, Shearman & Sterling, 599 Lexington Avenue,

New York, NY 10022, Counsel for Viacom International Inc.

Mr. Clayton E. Jones, Jones and Bartlett, 40 Tall Pine Drive, Sudbury,

MA 01776

Professor Gary L. Musser, 2236 Airlands Street, Las Vegas, NV 89134

Professors Vogeli Ginsburg and Greenes, c/o Professor Bruce R. Vogeli,

Teachers College, Columbia University, Box 210, West 120th Street, New

York, NY 10027-6696

Professor Federic Martini, 5071 Hana Highway, Haiku, HI 96708

John W. Poole.

[FR Doc. 99-11269 Filed 5-4-99; 8:45 am]

BILLING CODE 4410-11-M