Bloomberg News

Macmillan Settles U.S. Antitrust Suit Over E-Book Pricing

February 08, 2013

Macmillan, the last publisher left in a U.S. lawsuit alleging an e-books price-fixing conspiracy with Apple Inc. (AAPL:US), reached a settlement with the U.S., agreeing to void deals with retailers that restrict discounting.

The settlement also requires Macmillan to avoid entering any new restrictive agreements on price or promotions until December 2014. Macmillan, a unit of Stuttgart, Germany-based Verlagsgruppe Georg von Holtzbrinck GmbH, also agreed to a compliance program that includes reporting to the government communications with other publishers.

The agreement, filed in federal court in Manhattan, will “immediately allow retailers to lower the prices consumers pay for Macmillan’s e-books,” Jamillia Ferris, an attorney in the Justice Department’s antitrust division, said in a statement.

The settlement, if approved by a federal judge in Manhattan, would mark the end of a lawsuit for publishers alleging they conspired with Apple to undermine discounter Amazon.com Inc.’s dominance in the e-books market. The suit reflected stepped up enforcement against anticompetitive price- fixing agreements in industries including health care and auto parts. Regulators have also increased scrutiny of Apple’s digital publishing, mobile computing and music retail businesses.

Apple Litigation

The ligation against Apple will continue, the department said. Trudy Muller, a spokeswoman for Apple, declined to comment on the continued litigation.

Separately, U.S. District Judge Denise Cote in Manhattan today gave final approval to a $69 million settlement between 49 states and three of the publishers also named in the Justice Department complaint -- CBS Corp. (CBS:US)’s Simon & Schuster, Lagardere SCA’s Hachette Book Group and News Corp. (NWSA:US)’s HarperCollins.

The three settled with the U.S. when the suit was filed on April 11, while Pearson Plc’s Penguin reached an agreement in December. The companies named in the federal case are five of the six largest publishers of trade books in the U.S.

John Sargent, president of Holtzbrinck’s U.S. group, said in a statement that Macmillan settled “because the potential penalties became too high to risk even the possibility of an unfavorable outcome.”

The “breathtaking” liability Macmillan faced was “much more than the entire equity of our company,” he said.

‘Harmful’ Discounting

The company resisted settling because doing so called for “a level of e-book discounting we believed would be harmful to the industry,” Sargent wrote.

The Justice Department claimed in the suit that consumers were typically forced to pay as much as $14.99 or more for the most sought after titles, up from what one of the publisher’s chief executive officers described as the “wretched $9.99 price point,” that prevailed before the conspiracy.

The plan was aimed in large part at thwarting Amazon.com (AMZN:US) Inc., the largest U.S. seller of digital books, which had triggered an e-book boom by introducing the Kindle e-reader in 2007 and pricing bestselling e-books at $9.99.

At Apple’s suggestion, the publishers agreed to raise retail prices and give Cupertino, California-based Apple a 30 percent cut, according to the complaint. Amazon was eventually forced to fall in line.

Drew Herdener, a spokesman for Amazon, didn’t immediately respond to a request for comment about the settlement.

States’ Deal

The deal with the states approved today in Manhattan covers more than 143 million books, including at least 24 million copies of New York Times best sellers, according to the judge. More than 22.5 million consumers are expected to receive funds from the settlement, according to a memorandum filed in the case. A state settlement for Macmillan was also proposed. Cote is handling both cases. The states’ case, led by Texas, is continuing against Penguin and Apple, Texas Attorney General Greg Abbott said in a statement today.

The agreement is “absolutely adequate,” Cote said during the brief hearing. “I find it provides real value to all consumers here.”

Macmillan doesn’t admit to violating the law under terms of the proposed settlement with the Justice Department.

The Justice Department case is U.S. v. Apple, 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan). The case brought by states is Texas v. Hachette Book Group Inc., 1:12-cv-06625, U.S. District Court, Southern District of New York (Manhattan).

----With assistance from Christie Smythe in New York, Laurel Calkins in Houston and Danielle Kucera in San Francisco. Editors: Fred Strasser, Stephen Farr

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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