Feds, states take on e-book market

Bryan Cohen Apr. 11, 2012, 1:45pm


WASHINGTON (Legal Newsline) - U.S. Attorney General Eric Holder and a multistate group of attorneys general announced a settlement on Wednesday with three of the biggest U.S. book publishers and continuing litigation against Apple Inc. and two other publishers.

The proposed settlement with Hachette Book Group, HarperCollins Publishers LLC and Simon & Schuster Inc. would require the companies to give retailers such as Barnes & Noble and Amazon freedom to reduce their e-book prices.

The Department of Justice will continue to litigate against Apple Inc. and Holtzbrinck Publishers LLC, doing business as Macmillan and Penguin Group (USA).

All six publishers were named in a civil antitrust lawsuit filed in U.S. District Court for the Southern District of New York for allegedly preventing retail price competition resulting in consumers paying millions of dollars extra for their e-books.

"As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," Holder said.

"We allege that executives at the highest levels of these companies -concerned that e-book sellers had reduced prices - worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers."

The department's Antitrust Division and the European Commission cooperated closely with each other during their respective cases. The department also worked with the states of Texas and Connecticut to uncover the publishers' allegedly illegal conspiracy.

The multistate group involved in the settlement included the attorneys general of Texas, Connecticut, Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Pennsylvania, South Dakota, Tennessee, Vermont, West Virginia and Puerto Rico.

The five publishers and Apple were allegedly unhappy that competition among e-book sellers had dropped e-book prices and the retail profit margins of the book sellers to too low a level.

To address the concerns, the publishers allegedly entered into contracts together that eliminated price competition among bookstores selling e-books, which significantly increased prices paid by consumers.

Retailers had previously sold e-book versions of new releases and bestsellers for $9.99 but consumers must now pay $12.99, $14.99 or more for the most highly sought-after e-books.

The conspiracy began in the summer of 2009 when CEOs from the publishing companies met privately approximately once per quarter in private, upscale Manhattan restaurants, the government says.

During the meetings, the CEOs allegedly discussed Amazon's e-book's retailing practices. The companies allegedly accomplished the fix by agreeing to stop the longstanding practice of selling e-books on wholesale to bookstores.

This gave the bookstores the ability to set the price at which they would sell the e-books to consumers. Through the alleged agreements, the companies created a new e-book pricing model in which they took authority from all of their retail bookstores and increased prices for e-books. The goal was to force Amazon to return to acceptable sales prices, the government says.

The publishers allegedly agreed with Apple to pay the company a 30 percent commission for each e-book purchased through Apple's iBookstore and agreed to a retail price-matching most favored nation provision. The MFN meant that other e-book retailers would sell an e-book title at a lower price than Apple.

The publishers allegedly imposed agency terms on all other e-book retailers stopping the ability of retailers to discount or reduce the price publishers set for their e-book titles or to offer any special sales promotions for the e-books.

Under the proposed settlement agreement with Simon & Schuster, HarperCollins and Hachette, the companies will terminate their agreements with Apple and other e-books retailers and will be prohibited for two years from entering into new agreements that limit retailers' ability to offer promotions or discounts to consumers to encourage the sale of the e-books released by the publishers.

The settlement does not prohibit the companies from entering new agency agreements with e-book retailers, but the agreements may not prohibit the retailer from reducing the price set by the publishers.

The agreement imposes an antitrust compliance program on the three companies, including a requirement that each regularly report to the department on any communications they have with other publishers and that each provide advance notification to the department of any e-book ventures they plan to jointly undertake with other publishers. In addition, Simon & Schuster, HarperCollins and Hachette are forbidden from agreeing to any kind of MFN that could undermine the agreement's effectiveness.

The continuing litigation against Penguin, Macmillan and Apple seeks to restore price competition among e-book retailers in the sale of the litigating publishers' e-books.

Under the current agency agreements, Penguin and Macmillan prohibit e-book retailers from exercising any pricing discretion on their titles and Apple is free from price competition of any kind with other retailers in selling those e-books. The court will figure out a pretrial schedule for the case against Penguin, Apple and Macmillan when the companies file their responses to the government's lawsuit.

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