Justice Department and Penguin Settle Suit Over Ebooks

In News by Edward Nawotka

By Dennis Abrams

The Associated Press reports that the Justice Department has announced that it has reached a settlement with Penguin Group (USA) Inc., in its lawsuit accusing the nation’s largest book publishers of conspiring with Apple to raise the prices customers pay for ebooks.

If approved by a federal judge, the settlement will leave Apple and Holtzbrinck Publishers LLC (which does business as Macmillan), as the sole defendants facing the federal government’s charges that Apple colluded with several publishers in the fall of 2009 to force ebook prices above the $9.99 charged by Amazon to consumers using a Kindle ereader.

The Justice Department, which sued in April, reached settlements with Hatchette, HarperCollins and Simon & Schuster earlier this year. The trial against the remaining defendants is scheduled to begin in June.

“Since the department’s settlement with Hachette, HarperCollins and Simon & Schuster, consumers are already paying lower prices for the ebook versions of many of those publishers’ new releases and bestsellers,” said Jamillia Ferris, chief of staff and counsel at the Justice Department’s antitrust division. “The proposed settlement with Penguin will be an important step toward undoing the harm caused by the publishers’ anticompetitive conduct and restoring retail price competition so consumers can pay lower prices for Penguin’s ebooks.”

The settlement came as no surprise to many industry observers, who saw it as a way to simplify Penguin’s upcoming merger with Random House, which is not a defendant in the case.

In a statement, the company said, “Penguin has always maintained, and continues to maintain, that it has done nothing wrong and has no case to answer,” while adding that “It is also in everyone’s interests that the proposed Penguin Random House company should begin life with a clean sheet of paper.”

Under the terms of the settlement, Penguin “will be prohibited for two years from entering into new agreements that constrain retailer’s ability to offer discounts or other promotions to consumers to encourage the sale of Penguin’s ebooks,” and must submit to “a strong antitrust compliance program” that includes informing federal officials about any joint ebook ventures or any communications with any other publishers, Justice Department officials said.

The Justice Department’s lawsuit arose from agreements reached between major publishers and Apple in 2010 that allowed publishers to set their own prices for ebooks in an effort to counter Amazon’s deep discounts on best sellers. The department and 15 states accused Apple and the publishers of costing consumers more than $100 million in the past two years by adding $2 or $3, and sometimes as much as $5 to the cost of each ebook.

Penguin Books is scheduled to merge with Random House which is, in turn, owned by German media company Bertelsmann. The resulting combination will have around 25% of the market for consumer books, and “should the proposed joint venture proceed to consummation, the terms of Penguin’s settlement will apply to it,” the department said.

Just last week, the European Union’s competition watchdog accepted proposals by four publishers and Apple to end agreements that set retail prices for ebooks — a practice that the EU believed violated competition rules. The agreement was legally binding on Hatchette Livre; HarperCollins; Simon & Schuster; and Verlagsgruppe Georg von Holtzbrinck, which owns Macmillan. That deal was also binding on Penguin.

Apple, in the meanwhile, has said that the U.S. Justice Department’s accusation that it conspired with major publishers to raise the price of ebooks is untrue.

About the Author

Edward Nawotka

A widely published critic and essayist, Edward Nawotka serves as a speaker, educator and consultant for institutions and businesses involved in the global publishing and content industries. He was also editor-in-chief of Publishing Perspectives since the launch of the publication in 2009 until January 2016.