[Random-bits] Excessive Pricing of Essential IP: Textbooks and Parallel trade

[James Love]

http://www.nytimes.com/2003/10/21/education/21BOOK.html

Students Find $100 Textbooks Cost $50, Purchased Overseas
By TAMAR LEWIN

Published: October 21, 2003

Richard Sarkis and David Kinsley were juniors at Williams College, 
surfing the net for a cheap source for their economics textbook, when 
they discovered a little known economic fact: the very same college 
textbooks used in the United States sell for half price — or less — in 
England.



Just like prescription drugs, textbooks cost far less overseas than they 
do in the United States. The publishing industry defends its pricing 
policies, saying that foreign sales would be impossible if book prices 
were not pegged to local market conditions.

But many Americans do not see it that way. The National Association of 
College Stores has written to all the leading publishers asking them to 
end a practice they see as an unfair to American students.

"We think it's frightening, and it's wrong, that the same American 
textbooks our stores buy here for $100 can be shipped in from some other 
country for $50," said Laura Nakoneczny, a spokeswoman for the 
association. "It represents price-gouging of the American public 
generally and college students in particular."

But thanks to the Internet, more and more individual students and 
college bookstores are starting to order textbooks from abroad — and a 
few entrepreneurs, including Mr. Sarkis and his friends, have begun what 
are essentially arbitrage businesses to exploit the price differentials.

"We couldn't understand why what costs $120 here should cost 
$50-something there," said Mr. Sarkis, who, with Mr. Kinsley and another 
classmate, has spent three years building a Web-based company, 
BookCentral.com, selling textbooks from abroad to students in the United 
States. "It seemed so sleazy of the publishers. We were sure that 
college students would be shocked and outraged if they knew about the 
foreign prices. But it's been this big secret."

That is changing, though. To the despair of the textbook publishers who 
are still trying to block such sales, the reimporting of American texts 
from overseas has become far easier in recent years, thanks both to 
Internet sites that offer instant access to foreign book prices, and to 
a 1998 Supreme Court ruling that federal copyright law does not protect 
American manufacturers from having the products they arranged to sell 
overseas at a discount shipped back for sale in the United States.

Before the Supreme Court decision, Americans could not take advantage of 
the discounts abroad without violating the copyright law.

Now, however, "gray market" sales are taking off on campuses.

At one prestigious university, a sophomore imported 30 biology books 
from England this fall and sold them outside his classroom for less than 
the campus-bookstore price, netting a $1,200 profit. Next semester, if 
all goes well, he plans to expand the operation.

"The only difference is that they say `international edition' in little 
print on the cover," said the student, who added that he was not certain 
whether his project raised any legal issues, and therefore asked that 
neither he nor his college be identified.

At other colleges, Asian students have banded together to take advantage 
of textbook prices in Taiwan, Singapore and Malaysia, which are even 
lower than those in Europe.

Many students, individually, have begun to compare the textbook prices 
posted on American sites like Amazon.com, with the lower prices for the 
same books on foreign sites like Amazon.co.uk.

The differences are often significant: "Lehninger Principles of 
Biochemistry, Third Edition," for example, lists for $146.15 on the 
American Amazon site, but can be had for $63.48, plus $8.05 shipping, 
from the British one. And "Linear System Theory and Design, Third 
Edition" is $110 in the United States, but $41.76, or $49.81 with 
shipping, in Britain.

Many college bookstores, meanwhile, have taken matters into their own 
hands, arranging their own overseas purchases.

"I buy from Amazon.co.uk and from sources in the Far East, and I knew 
more and more students were doing the same thing, individually," said 
Tom Frey, owner of the University Bookstore at Purdue University, who 
sells the new books from overseas at the same price as a used American 
book. "Then this fall, for the first time, the Fed Ex man told me that 
the students at the Indian Association here at Purdue had just gotten a 
delivery of 14 skids of books, about 50 books each, from India. I think 
I'm losing about 10 percent of my sales to overseas books."

Relations between textbook publishers and college booksellers have been 
seriously roiled by the issue.

Students Find $100 Textbooks Cost $50, Purchased Overseas

Published: October 21, 2003

(Page 2 of 2)

"This has become a very hot issue since last year, when it just seemed 
to explode all of a sudden," said Ms. Nakoneczny, of the college store 
association. The association's letter to the publishers warned that the 
pricing structure might be an antitrust violation. "The sale of 
identical books to foreign buyers at prices significantly lower than to 
domestic buyers, while publicly stating that domestic prices are due to 
high costs, could constitute an unfair or deceptive act," the letter 
said. While there is no longer protection in the federal copyright law 
for the pricing differentials, the major publishers are still trying to 
stop the reimporting of texts priced for foreign markets, mostly through 
contract language forbidding foreign wholesalers to sell to American 
distributors. Some have placed stickers on covers, saying "International 
Edition RESTRICTED Not for Sale in North America" or added the cover 
line "International Student Edition."

None of the three major textbook publishers — Pearson, McGraw Hill, and 
Thomson — would discuss why overseas prices are so much lower than 
domestic ones, referring all questions to Allen Adler, the lawyer for 
the American Association of Publishers.

"This is a season when textbook publishers get kicked around a lot, and 
they're feeling vulnerable," Mr. Adler said. "The practice of selling 
U.S. products abroad at prices keyed to the local market is 
longstanding. It's not unusual, it doesn't violate public policy and 
it's certainly not illegal. But publishers are still coming to terms 
with the dramatic change in the law."

Mr. Adler contends that foreign textbook prices are pegged to the per 
capita income and economic conditions of the destination countries — and 
that foreign sales are a boon to America's standing in the world, to 
foreign students seeking an American-quality education, and even to 
American consumers, since each extra copy sold overseas, even at a low 
price, helps to spread the high costs of putting out a new textbook.

As more and more customers turn to reimporting books, it is an open 
question how long the overseas price differentials will last.

"We buy from the U.K., France, Israel and the Far East," said Bob Crabb 
of the University of Minnesota Bookstores. "As long as the publishers 
are offering books at less than half the price that's available here, 
we'll take advantage of it. It's great for students. For publishers, the 
marginal costs of printing a few extra books and selling them overseas 
are very, very low. But I would guess that shortly, the sales here will 
begin eating into their U.S. sales in a serious way."

Disgruntlement over textbook costs has been growing in the United States 
as prices have risen. Last month, Senator Charles E. Schumer, Democrat 
of New York, announced that the average New York college freshman and 
sophomore spends more than $900 a year on texts — 41 percent more than 
in 1998 — and proposed a plan to make $1,000 of textbook costs tax 
deductible. The same week, University of Wisconsin students demonstrated 
against high textbook prices and in favor of creating a textbook rental 
system.

To be sure, textbook costs, however high, are only the final straw for 
American college students, whose tuition costs and fees have been rising 
rapidly. At Williams and other elite universities, for example, tuition, 
room and board now tops $35,000 a year. In Britain, though, the cost of 
tuition is largely borne by the government and students pay much less.

For example, tuition alone for undergraduates at Harvard is currently 
$26,066 a year as compared with $1,840 at Oxford University.

In the United States, one in five students does not buy all the required 
texts. And more and more, like Mr. Sarkis and Mr. Kinsley, are willing 
to go to great lengths for a cheaper alternative. "I got mad when I 
found out that our labor economics book was something like $90," said 
Mr. Kinsley, who, like Mr. Sarkis, graduated in 2001. "I didn't think I 
would read $90 worth in it, so I was determined to find something 
cheaper, and I spent five hours searching on the Web."

Mr. Sarkis said Williams's campus bookstore made the high costs all too 
visible. "They really rubbed it in," he said. "If you were the highest 
spender of the day, they'd ring this little bell and say they had a new 
winner, and give you a lollipop. I got the lollipop twice."



-- 
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040