On 11 April the Department of Justice (the department) reached a settlement with three of the largest book publishers in the US – Hachette Book Group (USA), HarperCollins Publishers LLC and Simon & Schuster Inc. It will continue to litigate against Apple Inc, and the publishers Macmillan and Penguin Group (USA), for allegedly preventing retail price competition resulting in consumers paying millions of dollars more for their e-books.
The department alleges the five publishers and Apple were unhappy that competition among e-book sellers reduced e-book prices and book sellers’ retail profit margins. The companies allegedly entered into contracts to eliminate price competition among bookstores selling e-books, substantially increasing prices paid by consumers. Before the companies began their conspiracy, retailers regularly sold e-book versions of new releases and bestsellers for, as reportedly described by one of the publisher's CEO, the "wretched $9.99 price point." As a result of the alleged conspiracy, the department alleges that consumers are now typically forced to pay $12.99, $14.99 or more for the most sought-after e-books.
The complaint states that the companies accomplished their conspiracy by agreeing to stop the longstanding practice of selling e-books on wholesale to bookstores, and leaving it to the bookstores to set the price at which they would sell the e-books to consumers. As such, the companies imposed a new model under which the publishers seized e-book pricing authority from all of their retail bookstores and raised prices for e-books. The publishers also allegedly paid Apple a 30 per cent commission for each e-book purchased through Apple's iBookstore and agreed that no other e-book retailer would sell an e-book title at a lower price than Apple. The department said that the intent and effect of the publishers' contracts with Apple was to raise the prices that US consumers pay for e-books.
Under the proposed settlement agreement with Hachette, HarperCollins and Simon & Schuster, they would terminate their 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 the publishers' e-books. The settlement does not prohibit Hachette, HarperCollins and Simon & Schuster from entering new agency agreements with e-book retailers, but those agreements cannot prohibit the retailer from reducing the price set by the publishers.
The proposed settlement agreement includes a five-year prohibition on conspiring with or sharing competitively sensitive information with competitors, and from making any agreement that could undermine the effectiveness of the settlement agreement. It imposes a strong antitrust compliance program on the three companies, including a requirement that each provide advance notification to the department of any e-book ventures they plan to undertake jointly with other publishers and that each regularly report to the department on any communications with other publishers.
The ongoing litigation against Apple, Macmillan and Penguin seeks to restore price competition among e-book retailers in the sale of the litigating publishers' e-books. Under the existing agency agreements, Macmillan and Penguin prohibit e-book retailers from exercising any pricing discretion on their titles, and Apple is freed from any price competition with other retailers in selling those e-books.