IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Department of Justice
325 7th Street, N.W., Suite 300
Washington, DC 20530
3 Burlington Gardens
London W1X 1E
c/o Addison Wesley Longman, Inc.
One Jacob Way
Reading, MA 01867
VIACOM INTERNATIONAL INC.
c/o Viacom Inc.
New York, NY 10036
| No. 1;98-CV-02836
Judge James Robertson
The United States, acting under the direction of the Attorney General of the United
States, brings this civil antitrust action to enjoin Pearson plc and its wholly owned subsidiary,
Pearson Inc. (collectively "Pearson"), from acquiring certain publishing businesses of Viacom
International Inc. ("Viacom"), a wholly owned subsidiary of Viacom Inc., and to obtain other
relief as appropriate. Plaintiff alleges as follows:
- 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 science programs used by teachers and students in elementary schools for
kindergarten through sixth grade. These comprehensive programs, which typically include
textbooks and other educational materials as well as support services, are called "basal
elementary school science programs." Pearson and Viacom are two of only four major
publishers competing for sales of these programs.
- Pearson and Viacom also are head-to-head competitors in the development,
marketing and sale of textbooks and other educational materials used for college courses. For
over thirty college courses, they publish textbooks that are close substitutes.
- Unless this acquisition is blocked, competition for basal elementary school
science programs and for certain college textbooks and educational materials will be substantially
lessened, resulting in schools and students paying higher prices for textbooks and other
educational materials, a reduction in the value or quantity of ancillary materials received by
students and teachers, and a reduction in the support services offered. In addition, the quality of
textbooks and materials is likely to decline.
Jurisdiction and Venue
- This action is filed by the United States under Section 15 of the
Clayton Act, as amended, 15 U.S.C. § 25, to restrain the defendants
from violating Section 7 of the Clayton Act, as amended, 15 U.S.C.
- Defendants are engaged in activities that substantially affect interstate
commerce. The Court has jurisdiction of this action and jurisdiction
over the parties pursuant to Section 12 of the Clayton Act, 15 U.S.C.
§ 22 and 28 U.S.C. §§ 1331 and 1337.
- Defendant Viacom transacts business in this District. Venue is proper
in this District under 15 U.S.C. § 22 and 28 U.S.C. § 1391(c).
- Defendant Pearson plc is a foreign corporation that transacts business
in this District. Venue is proper in this District under 15 U.S.C.
§ 22 and 28 U.S.C. § 1391(d) (an alien may be sued
in any district). Defendant Pearson Inc. transacts business in this
District. Venue is proper in this District under 15 U.S.C. §
22 and 28 U.S.C. § 1391(c).
Defendants and the Transaction
- Pearson Inc. is a corporation organized and existing under the laws of Delaware,
with its headquarters in New York, New York, which publishes textbooks and other educational
materials under such names as Addison Wesley, Scott Foresman, and Harper Collins. Pearson
plc is an international media corporation organized and existing under the laws of the United
Kingdom, with its headquarters in London, England.
- Viacom is a corporation organized and existing under the laws of Delaware, with
its headquarters in New York, New York, which publishes textbooks and other educational
materials under such names as Prentice Hall, Silver Burdett Ginn, and Allyn & Bacon. Its
parent, Viacom Inc., is one of the world's largest entertainment and publishing companies and is
a leading competitor in nearly every segment of the international media marketplace.
- Pearson and Viacom reached an agreement on May 17, 1998, that provides for
Pearson to purchase certain businesses of Viacom, which publish textbooks and other
educational materials in major academic disciplines in elementary education, secondary
education, and higher education.
Relevant Geographic Market
- The defendants sell textbooks and other educational materials throughout the
United States to elementary and secondary schools and to colleges and universities. There are
few foreign publishers of the textbooks and other educational materials described below to which
United States purchasers would be likely to turn in the face of a small but significant price
increase by domestic publishers. The United States, therefore, is a relevant geographic market
within the meaning of Section 7 of the Clayton Act.
Reduced Competition in Basal Elementary School Science Programs
A. Relevant Product Market
B. Competition and Entry
- Schools throughout the United States teach science to students in elementary
grades (kindergarten through sixth grade). New science programs are typically reviewed and
selected every six to eight years. The decision to select a particular elementary school science
program generally is made at the local level by school districts or systems or by individual
schools. Administrators, curriculum coordinators, and classroom teachers participate in the
- Most elementary schools teach science through comprehensive science programs,
known as "basal elementary school science programs," which provide organization and structure,
as well as guidance and support, in how to teach the subjects. These basal programs are
generally designed and purchased as part of an integrated curriculum for use in multiple
elementary school grades. Student textbooks and teachers' editions of the textbooks are the core
of most basal programs. Additionally, the programs typically include other important
educational materials called "ancillary" materials, consisting of student workbooks and
notebooks, charts, videotapes, other audio-visual aids, and "manipulative" materials for student
science exercises and experiments. Basal elementary school science programs also typically
include services such as teacher guidance and instruction through training sessions, consultant
visits, and other support.
- States, school districts and systems, and individual schools desiring to purchase
basal elementary school science 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 or services provided. For example, a school seeking to purchase
a basal elementary school science program would not respond to a price increase by considering
basal programs in mathematics or reading. Nor would schools substitute alternative science
educational materials in sufficient numbers to defeat a small but significant price increase in
basal elementary school science programs.
- Basal elementary school science programs are a relevant product market for
purposes of analyzing this acquisition under the Clayton Act.
- Pearson and Viacom are head-to-head competitors for basal elementary school
science program sales. For example, Pearson's Discover The Wonder program (published under
the name Scott Foresman Science) is a close substitute for Viacom's Discovery Works program
(published under the name Silver Burdett Ginn Science). Pearson and Viacom consistently have
led the market for basal elementary school science programs.
- Pearson and Viacom also compete to maintain and improve program quality.
They currently are each developing new basal elementary school science programs. Starting in
1999, they will offer these programs for sale to schools throughout the United States.
- During the last six years, Pearson and Viacom have together accounted for
approximately 50 percent or more of new sales of basal elementary school science programs.
There are two other large publishers of basal programs, but only one of them offers a close
substitute for the defendants' programs. A few smaller publishers produce nontraditional
programs, but these programs are not close substitutes for the major basal programs. Thus, the
proposed acquisition would further concentrate a highly concentrated market.
- If Pearson acquires Viacom's basal elementary school science program, there is
unlikely to be timely entry by any company offering another such program that would be
sufficient to defeat an anticompetitive increase in price (including a reduction in ancillary
materials or services provided), or that would spur continuing innovation in the development and
production of such programs.
- To offer a basal elementary school science program, a publisher would first need
to assemble an experienced and knowledgeable editorial staff to develop and extensively test the
new program. Such a process is costly and time-consuming. Second, a large sales staff and
additional substantial capital would be needed to market a basal elementary school science
program effectively. Selling basal elementary school science programs requires a trained and
knowledgeable sales force to present the program to, and to foster relationships with,
administrators and teachers in each school district, and often in each school, in which a program
is sold. Third, funding for purchase of elementary school science programs typically is not as
large or consistent as it is for "core" subjects such as elementary school mathematics and reading
programs. This makes it less likely that publishers would undertake the necessary investments in
order to begin offering a basal elementary school science program because it increases the
possibility that entry would not be profitable. Fourth, a reputation as an experienced and reliable
science publisher is needed to successfully sell elementary school science programs.
Establishing such a reputation can be difficult and takes time.
C. Harm to Competition
- Pearson and Viacom's aggressive competition for basal elementary school science
program sales has resulted in lower prices, more and better ancillary materials and services, and
greater efforts to maintain program quality and innovation. The proposed transaction would
eliminate this competition between close substitutes. Thus, following the merger, the prices of
basal elementary school science programs likely would increase or the value of materials and
services likely would decline. In addition, the acquisition would likely reduce incentives to
improve the programs.
Reduced Competition in College Textbook Markets
A. Relevant Product Markets
B. Competition and Entry
- Publishers market textbooks and other educational materials to professors
in colleges and universities throughout the country. In most cases,
professors select the materials that will be used for their courses.
- Professors generally select textbooks to serve as the primary teaching
material for a course. Textbooks provide the core written material
for a course, serve as foundation for the professor's overall lesson
plan, and set forth the framework for class discussions. Professors
will choose among textbooks that can provide this core content and
structure. Students then buy the textbook selected by their professor,
typically at college bookstores.
- Publishers sometimes offer professors free ancillary educational
materials, such as a teacher's edition of the textbook, audio-visual
teaching tools such as color overhead slides, and copies of the textbook
for teaching assistants, as inducements to choose a particular publisher's
textbook. In addition, the textbooks that students buy sometimes are
part of a discounted package that includes further ancillary educational
materials such as CD-ROMs and study guides. For the thirty-two courses
identified in Exhibit A, college textbooks, along with ancillary educational
materials, are used as the primary teaching materials.
- Professors choosing a textbook and ancillary educational materials
for any of the courses listed in Exhibit A would not turn to any alternative
product in sufficient numbers to defeat a small but significant increase
in the price of the textbook available for that course or a small
but significant decrease in the ancillary materials sold or included
with the textbook. In addition, students purchasing a textbook for
any of the courses listed in Exhibit A would not turn to any alternative
product in sufficient numbers to defeat a small but significant increase
in the price of the textbook or a small but significant decrease in
the ancillary materials sold or included with the textbook.
- In many courses, used textbooks are available to some students.
Textbooks are generally revised every three to four years, and professors
usually require use of the newest edition. This limits the ability
of used textbooks to compete with new texts. Supply of used textbooks
is also limited by the number of students that sell their textbooks
back to college bookstores. Used textbooks cannot defeat an increase
in the price of new textbooks or a decrease in the supply of the ancillary
materials included or sold with them.
- Textbooks, along with ancillary educational materials, for each
of the courses listed in Exhibit A, constitute a separate relevant
product market for purposes of analyzing this acquisition under the
- In each relevant market, Pearson and Viacom offer textbooks that
are close substitutes. They are among the few leading firms that compete
to provide the textbooks and ancillary materials, accounting for a
significant share of all new sales. Thus, the proposed acquisition
would further significantly concentrate highly concentrated markets.
- If Pearson acquires Viacom's products, there is unlikely to be timely
entry by any company offering textbooks and ancillary materials in
any of the relevant product markets identified in Exhibit A that would
be sufficient to defeat an anticompetitive price increase, or a decrease
in ancillary materials, or that would spur continuing innovation in
the development and production of such products.
- Successful entry would require a publisher to assemble authors and
a sophisticated editorial staff to develop a new textbook and to have
it reviewed by numerous professors prior to its publication. Such
a process is costly and time-consuming. Effectively selling college
textbooks usually requires a trained and knowledgeable sales force
to visit and foster relationships with professors at each school to
which the textbook is sold, along with direct mail solicitation and
participation in conventions. Finally, the reputation of the successful
incumbent textbook may be difficult for a new textbook to challenge.
In most of the markets listed in Exhibit A, the leading textbooks
have been published for many years, and are well known to most faculty
members who teach in the field.
C. Harm to Competition
- Competition between Pearson and Viacom to provide college textbooks
and ancillary materials for the courses listed in Exhibit A has resulted
in lower prices, the availability of more ancillary materials, and
created a significant incentive for each to publish new titles and
to improve product quality. The proposed transaction would eliminate
this competition. Following the merger, Pearson could unilaterally
raise the prices of, or reduce the ancillary materials provided with,
its and Viacom's products. An increase in price or reduction in ancillary
materials and services by other firms would be more likely as well.
The acquisition also would reduce incentives to publish new textbooks
and ancillary materials and to improve the existing textbooks and
- The effect of Pearson's acquisition of certain Viacom publishing businesses is to
lessen competition substantially in interstate trade and commerce in violation of Section 7 of the
- Unless restrained, the transaction will likely have the following effects, among
- actual and future competition between Pearson and Viacom will be
- competition generally in the market for basal elementary school science
programs and in the markets for the sale of textbooks and ancillary
materials for each of the college courses identified in Exhibit A will likely
be substantially lessened;
- prices for basal elementary school science programs and for textbooks and
ancillary materials for each of the college courses identified in Exhibit A
will likely increase or the value of ancillary materials or services will
likely decline; and
- competition in the development and improvement of basal elementary
school science programs and college textbooks and ancillary materials in
each of the college courses identified in Exhibit A will likely be
Request for Relief
- The plaintiff requests (a) adjudication that Pearson's proposed acquisition of
certain Viacom publishing businesses would violate Section 7 of the Clayton Act, (b) preliminary
and permanent injunctive relief preventing the consummation of the proposed acquisition, (c) an
award to the plaintiff of the costs of this action, and (d) such other relief as is just and proper.
Dated: November 23, 1998
Joel I. Klein
Assistant Attorney General
John M. Nannes
Constance K. Robinson
Director of Operations
and Merger Enforcement
Chief, Civil Task Force
Susan L. Edelheit
Civil Task Force
John W. Poole
DC Bar #34136
Joyce L. Bartoo (DC Bar #359264)
David C. Kully (DC Bar #448763)
Ahmed E. Taha
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Mathematics for Elementary Teachers
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