April 15, 2014

Update: Justice Files Agency Pricing Suit; Three Publishers Settle

From

This article has been updated to include information on the state lawsuits and Canadian, publisher statements, and links to the proposed settlement and competitive impact statement, courtesy of Infodocket.

The Department of Justice today filed its antitrust suit against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster over the agency model of ebook pricing.

However, Attorney General Eric Holder announced at a press conference that Hachette, HarperCollins and Simon & Schuster have agreed to a proposed settlement.

“If approved by the court, this settlement would resolve the Department’s antitrust concerns with these companies, and would require them to grant retailers – such as Amazon and Barnes & Noble – the freedom to reduce the prices of their e-book titles.   The settlement also requires the companies to terminate their anticompetitive most-favored-nation agreements with Apple and other e-books retailers,” said Holder. In addition, the companies will be prohibited for two years from placing constraints on retailers’ ability to offer discounts to consumers.  They will also be prohibited from conspiring or sharing competitively sensitive information with their competitors for five years.  And each is required to implement a strong antitrust compliance program.” A competitive impact statement for the proposed settlement was also filed.

Despite agreeing to the settlement, both Hachette and HarperCollins deny collusion or liability, according to Publishers Lunch.

Macmillan has declared it has no intention of settling. In a letter to authors, illustrators and agents, Macmillan CEO John Sargent wrote:

“The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.”

John Makinson, Chairman and CEO of Penguin Group, also issued a statement, in which he said that “alone among the publishers … we have held no settlement discussions with the DOJ or the states.”

Penguin made this decision, he said, for two reasons. “The first is that we have done nothing wrong…The second, and equally powerful, reason for our decision to place this matter in the hands of a court is that we believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books.”

Apple has not yet responded to LJ’s request for comment.

The DOJ filing alleges that senior executives from the defendants met in 2008-2009 to collectively come up with a plan to end Amazon’s pricing strategy, a conspiracy claim for which the department claims to have direct as well as circumstantial evidence.

Among the relief requested by the department in the lawsuit is the nullification of the Apple Agency Agreements and “any agreement between a Publisher Defendant and an ebook retailer that restricts, limits, or impedes the ebook retailer’s ability to set, alter or reduce the retail price of any ebook or to offer price or other promotions to encourage consumers to purchase any ebook, or contains a retail price MFN (most favored nation status.)

Acting Assistant Attorney General Sharis A. Pozen also spoke at the press conference. Said Pozen, “I want to stress that agreements between companies that are reached unilaterally are legal and appropriate. However, let me be clear, when companies get together and conspire to enter into agreements that eliminate price competition, it crosses the line.”

Some 16 states have filed an antitrust lawsuit against Apple, Macmillan, Penguin, and Simon & Schuster as well.

Connecticut Attorney General George Jepsen and Texas Attorney General Greg Abbott have reached agreements with Hachette and HarperCollins to provide consumer restitution using a formula based on the number of states participating and the number of eBooks sold in each state. While the details have not yet been worked out, PaidContent quoted Jepsen as estimating the restitution at $52 million.

Joining Texas and Connecticut in the lawsuit are: Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia and the Commonwealth of Puerto Rico.

Steve Berman, lead counsel in the class action case over the same allegations, issued a statement applauding the DOJ’s filing but saying it doesn’t take the place of his own litigation. “While Attorney General Holder’s actions, if successful, will put an end to the anticompetitive actions, our class-action is designed to pry the ill-gotten profits from Apple and the publishers and return them to consumers,” Berman said.

Even though only 16 states have taken action against the publishers and Apple, three publishers might settle with all 50 states, PaidContent quoted a HarperCollins lawyer as saying.

Such an action might short circuit much of the class action suit, but it would not all of the publishers’ troubles, because Canada is getting into the act now too: A proposed class-action lawsuit was filed in British Columbia’s Supreme Court by Vancouver firm Camp Fiorante Matthews Mogerman, according to the Globe and Mail.

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Meredith Schwartz About Meredith Schwartz

Meredith Schwartz (mschwartz@mediasourceinc.com) is Senior Editor, News and Features of Library Journal.

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