Justice reaches settlement with Penguin on e-books

Lawsuit accused publisher of colluding with Apple to raise e-book prices

By Jesse J. Holland
Associated Press

WASHINGTON (AP) — The Justice Department announced Tuesday it has reached a settlement with Penguin Group (USA) Inc. in its lawsuit accusing the nation’s largest book publishers of colluding with Apple Inc. to raise e-book prices on customers.

The settlement, if approved by a federal judge, leaves Apple and Holtzbrinck Publishers LLC, which does business as Macmillan, as the only defendants standing against the federal government’s charges that Apple,
the multimedia and computer giant, conspired with several publishers in the fall of 2009 to force e-book prices several dollars above the $9.99 charged by Amazon.com on its popular Kindle device.

The Justice Department, which sued in April, settled with Hachette Book Group, Inc., HarperCollins Publishers LLC and Simon & Schuster Inc. earlier this year. The trial is scheduled to begin in June.

“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 e-books,” said Jamillia Ferris, chief of staff and counsel at the Justice Department’s antitrust division.

Apple Inc. has said the government’s accusation that it conspired with major book publishers to raise the price of e-books is untrue.

The proposed settlement was filed in federal court in New York.

The settlement had been expected by some industry observers as a means to simplify Penguin’s impending merger with Random House, which is not a defendant in the case. That deal would create the world’s largest publisher of consumer books.

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

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

E-books are believed to comprise around 25-30 percent of total book sales.

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

Last week, the European Union’s competition watchdog accepted proposals by four publishers and Apple to end agreements that set retail prices for e-books — a practice the EU feared violated competition rules. The agreement was legally binding on Hachette Livre; Harper Collins; Simon & Schuster; and Verlagsgruppe Georg von Holtzbrinck, which owns Macmillan. That deal was also binding on Penguin.