Penguin settles DOJ e-book price-fixing lawsuit

Apple and Macmillan will continue to fight the case

Penguin Group has become the latest book publisher to reach a settlement with the U.S. Department of Justice in a lawsuit that alleges that Apple and five publishers had conspired to raise e-book prices.

Under the proposed settlement agreement filed in the U.S. District Court for the Southern District of New York, Penguin will terminate its agreements with Apple and other e-books retailers and 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 Penguin's e-books, the DOJ said on Tuesday.

The DOJ filed in April an antitrust lawsuit against Apple and five large publishers, accusing the companies of working together to raise prices of e-books, in retaliation for competitor Amazon.com pricing most e-books at US$9.99 beginning in late 2007.((

The publishers allegedly teamed up with Apple to counter Amazon's strategy to lower substantially the prices of newly released and best-selling e-books to $9.99, a price that the defendant publishers saw as a challenge to their traditional business model, the DOJ said in its complaint in April. In early 2010, the defendant publishers agreed to shift to a new pricing model called the agency model, where they set the prices for e-books, instead of retailers, the DOJ alleged.

The DOJ's antitrust division previously settled its claims against Hachette Book Group, HarperCollins Publishers, and Simon & Schuster. Apple and Holtzbrinck Publishers, which does business as Macmillan, will continue to litigate, the DOJ said. It claimed that the settlements led to lower prices of e-book versions of many new releases and bestsellers from the publishers.

The department is currently reviewing a proposal by Penguin and Random House to combine their businesses in a joint venture to be named Penguin Random House. Should the proposed joint venture proceed to consummation, the terms of Penguin's settlement will apply to it, the DOJ said.

Under the terms of the settlement, Penguin is also required to provide advance notification to DOJ of any e-book ventures it plans jointly with other publishers, and regularly report to the department on any communications it has with other publishers. It is also forbidden for five years from offering preferential terms in a "most favored nation" kind of agreement that could undermine the effectiveness of the settlement, DOJ said.

Penguin could not be immediately reached for comment. Under the settlement the publisher will also cooperate in the ongoing prosecution of the case, including making Penguin employees available for testimony at trial.

A trial against Macmillan and Apple is scheduled to begin in June next year.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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